So it is out with old remuneration models, manual/labour-intensive systems and ‘once-and-done’ client engagement models with no ongoing service. And in with transparency on fees, remote and self-servicing for clients and economic and efficient service delivery. But there is still some way to go.
Model
I estimate it will take an average of between 18 months to three years for advisers to find the model that best suits their customer bank. By then, they may have made up to five attempts to find the solution that suits them and their customers best.
Once established, however – and after the anticipated short-term reduction in cash flow that many will experience – they will find they are able to build a more sustainable business and one which, ultimately, will have a larger re-sale or cash value.
I also believe the vast majority will be looking more closely at their protection portfolio, which can often be overlooked in preference to over-focusing on the investment side.
Obviously, it is still early days and, although one cannot yet draw any definite conclusions, there are tangible signs that those who have made the transition are already seeing an increase in income.
Advisers are quickly learning how to explain the value of the expertise they provide and clients are responding with a general willingness to pay.
Many are finding that it is more of an emotional journey for the adviser than the customer. Advisers who can engage with their customers are finding that interpersonal skills and the ability to sell themselves is as much a factor as the proposition itself.
Adviser feedback post-RDR has revealed three main findings:
- Interaction with and learning from the experiences of fellow advisers is invaluable.
- It takes time to get your offering right.
- There has been much less resistance to fee-charging than was anticipated.
Ironically, that lack of resistance is not in the slightest bit attributable to any awareness campaign mounted by the FCA. Instead, it is down to a growing recognition by consumers that one cannot expect something for nothing nowadays. Hence the transition has been received more favourably than expected. In return, however, clients expect certain key levels of service. Experience also tells us that customers are increasingly utilising technology to conduct their own research before turning to an adviser for assurance, expert advice and to complete transactions.
Even though customers are a lot savvier, however, it is vital to remember that insurance, investment and protection policies are often still sold and not bought.
Then there remains the increasing problem posed by the savings gap, which offers a wonderful opportunity to help customers with less wealth. This at a time when, paradoxically, the cost of regulation is putting financial advice out of reach for an ever-larger section of the population.
To counter this, the FCA is encouraging providers to come up with affordable solutions, but it remains to be seen whether or not this is achievable given all the practical constraints around so-called ‘simplified’ advice.
Despite such handicaps, I have been pleasantly surprised by how well the industry has adapted so proficiently. Perhaps that should come as no surprise. After all, we have a history of doing so repeatedly in recent decades and this is no exception.
True, there was an approximate 10 per cent to 20 per cent reduction in the overall number of advisers across the industry in the 12 months prior to the RDR and more since. But those broad figures are mitigated by those who have transitioned to non-investment advice and those who have subsequently gained their level four qualifications.
Against that, too, is the fact that productivity levels are up on the previous year, although in fairness this could be partly as a result of the amount of time and effort expended in preparing and training for the change.
It remains a concern, though, that the industry as a whole is failing to attract new advisers and entry is becoming ever-more difficult.
I fully expect the bedding-in period to last at least another year, as re-shaping business plans becomes second nature for advisers. That will be a sure sign that they have fully adapted and the latest stage in their evolution will be complete.
I say ‘latest’ stage, because no one should ever reach a point where they can be happy standing still. If they do, they will be overtaken by their competitors.
We were not expecting the debate into trail payments to be re-opened after the FSA’s recommendation that they be allowed to continue. This is having a huge destabilising effect on the market as historic transactions for buying adviser practices were often based upon multiples of trail and any changes could instantly devalue many existing practices.
I believe it is one of – if not the – biggest issues the industry currently faces. If it causes a further reduction in adviser numbers then the burden on the remaining financial community will become unsustainable.
As I see it, the FSA accepted that in many cases and, in the absence of an agreement to the contrary, trail was simply deferred initial income.
Consequently, advisers were encouraged to take less up front and more in arrears, in order to build a sustainable business model and weather any future downturn in income.
Wipeout
At the stroke of a pen, this could now be wiped out – with no indication that the customer would benefit, as most providers will not be rebating that commission to customers.
In a nutshell, there is no need for, or benefit from, such a shift in policy.
To summarise, the RDR is but another chapter in the continuing story of the financial sector’s need to adapt to survive.
When we look back on 2013, I feel sure it will be regarded as a period of managing enormous change through incremental adjustment and consolidation.
Next year I feel the outlook will become more positive, as the lessons of the preceding 12 months will have been learnt and advisers can truly begin adding value to their propositions and delivery.
Mike O’Brien is managing director of TenetConnect and TenetSelect
Key points
- The ability to change and adapt aids survival (and failure can lead to extinction) and the financial services sector is no exception.
- Interaction with and learning from the experiences of fellow advisers is invaluable.
- The debate into trail payments is having a huge destabilising effect on the market as historic transactions for buying adviser practices were often based upon multiples of trail.
What the future holds
So looking to the future, I am expecting to see further re-positioning as a result of:
- Changes in platform structures.
- The Office of Fair Trading report on the department for work and pensions’ position on pensions charging
- Whether or not trail commission will be banned.
That is to name just three. There are numerous other issues in the pipeline, so until some measure of stability is achieved, advisers must remain on alert and ready to react as necessary.
