If 2012 was about getting to grips with the rules, determining our offering and, in turn, helping advisers determine what their proposition might be, then 2013 was about bringing all of that into practice.
So what does the third act of the RDR in 2014 promise? Operationally, it will be a time for advisory firms to start chasing up any remaining clients who are still being serviced under pre-RDR pricing models in readiness for April 2016, when trail commission will be switched off for good. We’re therefore going to hear plenty more about managing ‘orphan’ clients and how best to protect, or annuitise, income streams.
Strategically, we envisage it will be an opportunity for many advisory firms to take stock and consider what has been working well so far and what needs to be improved – whether that’s in terms of pricing or proposition, or how to drive efficiency and profitability.
For all of us – advisers and platforms – responding to the RDR is still a work in progress. The need to see how propositions can be further improved, and what fresh thinking we can introduce, doesn’t stop. That’s why, for example, we removed our fixed annual platform charge following the takeover by Legal & General.
Predictably, 2014 will see a continued focus on pricing – for platforms, fund managers and advisory firms. It will be fascinating to see where pricing pressures emerge.
Will we see a greater focus on low-cost passive funds? Will demand for more specialist investment funds decline? And how will advisory pricing evolve for the high net worth versus the mass consumer market?
Whatever happens, the focus should be on value, not cheapness. Charging more than the fund industry standard of 75 basis points a year should be perfectly acceptable so long as the ‘risk versus reward’ characteristics are within the investor’s tolerance.
Likewise, if a consumer can clearly see and experience the benefits that their adviser and platform provides, then price shouldn’t be an issue. The worst-case scenario will be a race to the bottom where quality of service and product are sacrificed in a scramble to retain assets.
Hopefully, 2014 will be the year that consumers themselves start to cotton on to what the RDR really means for them. Surveys on the matter show public awareness of the RDR has been almost negligible.
But perhaps with one year down, more savers and investors will start to become aware that there’s a whole highly qualified industry of professional advisers ready to support them.
That’s a message we all need to work harder at getting out there (particularly now that advice from the most visible channels – the high street banks – has been brutally cut back).
But given the progress that’s already been made in the first two acts of the RDR, it’s definitely a message worth shouting.
Andy Coleman is director of distribution at Cofunds
