Your IndustryOct 17 2012

Ticking all the right boxes

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Understandably, to date the retail distribution review focus for advisory firms has been on qualifications, business models and profitability.

One consequence of RDR that has not received much press coverage or focus with advisers is that of product, fund and investment solutions research. Whether operating a restricted, independent or hybrid model, justification and recording any output on the client file to meet suitability and research requirements will remain a key aspect of meeting the increasing regulatory scrutiny. This article considers the regulatory expectations for research, the importance of research tools post-RDR and aspects advisers should consider when selecting a tool.

There will be a need for research to be conducted if operating as independent, with or without any centralised investment proposition, and potentially in a restricted model.

The FSA finalised guidance paper issued in June 2012, Retail Distribution Review: Independent and Restricted Advice, clarified the advice requirements for meeting the standard for independent advice after 31 December 2012. The requirements of the rule on independent advice are that the personal recommendation is:

– Based on a comprehensive and fair analysis of the relevant market.

– Unbiased and unrestricted.

So how will advisers ensure that they can demonstrate suitable due diligence?

How will advisers identify client needs and conduct research across more specialist retail investment products, such as investment trusts or structured products, post-RDR?

I think we should now expect more regulatory focus on the appropriateness of independent research.

Many advisers may well consider that the need to conduct research will no longer apply in a restricted proposition model. Unfortunately, depending on the model, this is not the case. Where the model offers a range of solutions, with a number of products or funds, advisers will still need to conduct appropriate research to select the product that best meets their clients’ specific needs.

Finally, due diligence is required to conduct market research to identify appropriate centralised investment proposition solutions to meet client needs. Such research should be reviewed regularly. How do you conduct research for platforms or discretionary fund managers? Can research tools help here?

The changes being brought about by RDR mean that advisers’ business models will have to adapt and it is most likely that many businesses will need help to achieve this. Outsourcing aspects of the advisory business to third parties has been a theme of the past few years. This can help cut costs, improve efficiency and improve client outcomes through the use of third-party tools and specialist services. Research is a key example of this outsourcing trend.