In the last month or so we have seen the publication of 2012 results of life providers and they make for interesting reading. Legal & General, Prudential, Standard Life and Aegon all reported significant profit improvements in 2012.
Friends Life and Aviva have been less fortunate; the former suffering from integration costs and the latter looking to develop a new strategy to recover its business. All the statements from the chief executives published with the results indicate a level of bullishness for the future of their businesses, which might lead one to believe that all is well in the world of UK life companies.
However, there was disappointingly little detail on the impact of RDR beyond statements of readiness and occasional comments about it offering opportunities. One might infer that this represents a business-as-usual approach following the hiatus of activity to accommodate adviser charging.
This approach to RDR overlooks some profound changes taking place in the market. The move to adviser charging inherently means that advisers are less dependent on life providers than they were in the days of commission. The role of the life office in bank-rolling advisers’ commission has ended and the relationship with advisers has changed fundamentally as a result.
In the past, providers and advisers were both focused on volume of new business; today, advisers are much less interested in new business volume as they have moved fully or partially to trail fees for advice and on-going service. The relationship between adviser and provider is changing from one of dependency to independency and with it there is a shift in power base. Today some adviser firms have assets under management of over £1bn – 20 years ago that would have been a respectable size for a life company.
There will be a drop off in new business volumes post-RDR and it will result from advisers being less interested in product sales. There is also a regulatory focus on ensuring that certain pre-RDR practices are not repeated. Recently Rory Percival from the FCA was quoted saying that the regulator expected to see less “inappropriate replacement business” than before 2013.