Retail Distribution Review - RDR Strategy


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In this paper we show you the impact of failing to plan for the changes and the need for planning your firms strategy.

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Retail Distribution Review - RDR Strategy

  1. 1. 2011 Retail Distribution Review Don’t Fail to Plan The financial advisers who welcome the RDR believe that the emergence of higher-qualified practitioners will have an enormous bearing on improving consumer outcomes far outweighing any short term losses or inconvenience of the ban on commission. Lee Werrell CEI Compliance Limited Tel 0800 689 9 689
  2. 2. Retail Distribution Review: Don’t Fail toPlanWithout doubt, the Retail Distribution Review (RDR) is one of the most important regulatorydevelopments for many years. Far reaching and constructively changing the financialservices world or short-sighted and destroying the work of decades, the views would appearpolarised. Whatever it is, the RDR is prompting both financial advisers and providers torethink the financial landscape from the points of view of the end consumer, who, in theend, are the ones that matter.Unfortunately the RDR has happened in a period where the Financial Services Authority(FSA) is due to be split up and undergo radical change itself, which adds to the turmoil of thechange, like two tornados meeting. The ultimate outcome is the FSA’s desire to close thesavings gap by giving consumers greater confidence and trust in the products they hold, andthe advice they take.The new framework comes into place atthe end of 2012, and provides a fantasticand rare opportunity to build long-termrelationships focused on investment andtax solutions rather than products.Technology and all the wizardry that itprofesses will be harnessed to thebenefit of clients, advisers and providersalike. A new, leaner, more effective andproductive financial services firm willthrive; those who do not plan, fail toengage help in their setting of strategyand implementing adequate processes and procedures, will ultimately fail.The RDR proposals have the greatest potential to provide for a thriving advice sector,serving clients, customers, investors and savers alike, valuable, essential and professionaladvice.The financial advisers who welcome the RDR believe that the emergence of higher-qualifiedpractitioners will have an enormous bearing on improving consumer outcomes faroutweighing any short term losses or inconvenience of the ban on commission.Skandia has published research in the form of their Adviser Confidence Barometer thatsuggests 73% of advisers feel the quality of advice will improve mostly because of the RDRsenforced higher minimum qualifications. Only 19% felt the ban on commission would havethe most positive impact, found.However, advisers who felt the RDR would improve consumer outcomes were outnumberedby those who did not.1|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  3. 3. A total 57% of the 1,700 adviser respondents said they either felt the RDR would have anegative impact on the customer experience, or that it would have no bearing at all.But Skandia said the number of advisers positive about the RDR represented good news forthe industry.Adviser chargingMiraculously and quite painlessly the industry is already well on the way to the new modelof adviser charging that the RDR will make mandatory. The welcome inclusion of restrictedadvice within the rules and the separation of product and advice charges by verticallyintegrated firms will bring much needed consistency to the market. The marketplace hasbeen too confused recently with tied, multi-tied, panelled IFAs and whole of market IFAs.Independent and restricted adviceThe distinction n the new rules between ‘independent’ and ‘restricted’ advice providesplenty of opportunity for financial advisers to clearly plan, develop and differentiate theirservice offerings. There will always be value associated with the independent label, but the‘restricted’ label gives scope to offer different types of services to meet different client requirements. A vital element of the initial recommendation and ongoing service requirements is the ensuring that each customer understands the service they are agreeing to; which makes the different forms of advice work. The adviser who truly embraces the new regime of advice and takes segmentation one step further, can really turn it to their advantage by creating a streamlined, technologically efficient and profitable business, providing services that all types and category of client both need and want.Unqualified AdvisersNon-advisory roles offered to IFAs who fail to meet RDR requirements are rightly beingwarned by the FSA to make sure they do not accidentally or purposely start to delivereradvice.Some firms are considering offering paid introducer roles to unqualified advisers or retireesafter 2012 as they pass their clients on to a new, qualified practitioner. These outgoingadvisers or lay advocates may sit in on meetings and be a point of contact for their oldclients, but they will not be permitted to give financial advice or professional opinion. This2|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  4. 4. being a potential major and devastating loose end, encouraged firms to seek guidance fromthe FSA about how the regulator would view this arrangement and admitted to concernsabout unauthorised individuals “accidentally” advising clients.The FSA hinted it would be firms’ responsibility to ensure lay advocates do not makerecommendations to their old clients. The FSA view was that an ex-IFA employed in such acapacity will have to be extremely careful not to advise. Clear and documented salesprocesses for advisers and non-advice roles need to be completed and filed as part of thecompany’s processes under SYSC and the T&C scheme.The FSA said it was not necessary to issue any further guidance on lay advocate adding: “Thesituation is very clear: Any adviser giving advice after 1 January 2013 must be fullyqualified.”Firms have said that they will pay “lay advocates” in a number of ways. This could be as apercentage of client fees, as a salary or as a fixed retainer.The Trail Commission Confusion explainedThere was confusion over trailcommission and what happensunder the RDR rules.The FSA have clearly stated that receiptof pre-RDR trail commissions is a rightof advisers for previous advice andservice commitment. If a firm is boughtby another, the new rules will notprevent entitlement to trailcommission being transferred to thenew firm.This has to be welcome news to the advisers if, as it appears, the change in sentiment willnow allow a smooth transition for firms that wish to change their business model fromdirectly authorised to networks or nationals or, even to sell their business.Preventing the transfer of trail commissions would have caused significant stress for manyfirms now concerned the options going forward. Particularly concerned were those whowere looking for a possible exit after a lengthy industry career. Although trail commissionwill end in respect of new business post 2012, the regulator in their wisdom has at leastallayed some fears with a sensible and moderate approach.3|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  5. 5. It has been muted that the reasons the rule was introduced was to stop advisers goinground sucking up clients and trail income but not providing any ongoing service to clients,with the only objective of receiving recurring income streams from the providers.Now that we have confirmation the regulator expects trail commission to eventually die offover time, it is also much easier to understand the right way forward: where an adviser isreceiving trail then they can continue to receive that historic trail post 2013, but then goingforward, ongoing charges will only be levied where a client is paying for an ongoing service.For advisers, this is a powerful argument as to why adoption of clearly written clientagreements which can align the adviser and client perfectly. The client effectively entersinto an ongoing service agreement with the adviser which sets out specific services theclient will receive; how much this will cost and also that the client can cancel the service andcease payment if they felt that they were not receiving the service agreed upon.Over time trail commission as we know it will indeed cease to exist and an adviser’s businesswould be made up. This in itself instills the need for advisers to build up long-lasting,professional and trusted business relationships with their clients and seek to providefinancial advice and guidance over the years focusing on clients’ goals and objectives.Platform technology In a post-RDR world it should be an ideal environment in which to be an adviser, but in alongside the new adviser offering providers will have to step up to the mark in order to offer appropriate and quality support. The platform providers not only need to offer the correct and appropriate support, but they also need to work on getting the technology right. The platform model can, if accurately planned and appropriately managed, deliver the diversification and flexibility all theadvisers need to meet the needs of a segmented post-RDR client base. To be effective itneeds to provide the solid foundation that clients’ financial plans require and allow for theseplans to be easily implemented and managed.Choosing a platform will become more technical and demanding in the post-RDR world andcorrect due diligence will need to be conducted to satisfy compliance requirements. Thefollowing list provides an indication of what any adviser needs to consider when performinga robust due diligence review. These include:  Platform reputation and financial standing  Terms and Conditions of using the platform  Cost, charging structure and transparency of charges4|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  6. 6.  Range of funds and tax wrappers  Range of asset classes  Functionality  Accessibility  Additional tools such as risk profiling and asset allocation  Training and support services.Post RDR – The Survival of the fittestThe RDR is rapidly approaching and it is not just a question of getting qualified. If you thinkof your own RDR transition, what will you do in those 18 months left? Will you embracechange or have you yet to start your journey?You will need to consider what your businesses model will look like in this challenginglandscape and to identify the needs of your clients. Once you achieve this, we must try andmeet these needs in a manner that delivers business profitability and a mutual and ongoingbenefit for both the adviser and the client.Many experts have waxed lyrical on their views of what an RDR-ready business looks like.Some are accurate and some irrelevant to individual firms businesses, however, the time forthinking about it is nearing an end. Winston Churchill used a stamp for staff papers stating“Action This Day”; a standard to be heeded now. Action is now vital if you want to ensureyou can implement a profitable and fulfilling business model under the RDR.The problem for many advisers is that although they desire change, many do not have thetools or support available to enable this. Theory is all well and good but it is no substitutefor rolling up your sleeves and working out your future business model and now practicalhelp is at hand.There appears to be several main ways to maximise your transition to the brave new worldand these are considered to be;5|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  7. 7. 1. Vision - decide what you want your business to look likeBusiness structure: you need to develop your business model or framework. Initially youneed a clear description of  what you do now  who you do it with  who helps you and  what you get in return for the effort you put in and the services you provide.Write this down, avoid the jargon and then give it the future-vision test:  Does it seem real?  Does it motivate you?  Will it excite and attract new clients?  Will it keep existing clients interest?  Do you have any unique selling points?  Is it achievable at an ongoing profit?If it fails any of these criteria, start again.2. Segment your client bank to identify profit and long term valueMoving into business planning mode requires you to define your customer segmentation bydividing your client base into groups of individuals that are similar in terms of age, gender,interests, spending habits and so on. Companies using segmentation find it allows them totarget groups and allocate business resources more effectively.Simply put, customer segmentation as the best way of identifying the clients who canprovide you with most profit in future. It can also help you identify the clients that arecosting you time and money, as well as spotting those that you can develop into betterclients.You will then ensure you design a proposition that offers sustainable long-term value forboth your business and your clients.3. Design your client propositionYour client proposition is what it says on the tin. This is the charter or what you say you willdo for your current and potential clients. As you transition your business, it is a good idea toask yourself questions such as:  Do you have a client experience?  Will clients pay a fee or a retainer for this?  Is it of real value to you and the client now and in the future?6|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  8. 8. On reflection, if you realistically think that the answer to any of these questions is likely tobe no, you need to rethink. You need to develop a profitable proposition that delivers reallong-term value to your clients.With the right client proposition, you can create and build relationships with loyal clients aswell as make yourself RDR-fit at the same time.4. What are your remuneration options after 2012?Not only have you decided upon a correct, fair and workable client proposition for each ofyour customer segments but you also need to then select the most appropriateremuneration methods for the service you will provide tot them. Whichever method youchoose, always make sure it is profitable.Areas to consider may be;  adviser charging;  consultancy charging;  trail commission;  retainers;  fees; and  protection issues.5. ProcessesProcesses and procedures are more important in the regulatory side of providing advice.Just as important as deciding on your remuneration options are the processes you must putin place.6. Make an action planYour action plan should be on-going and develop organically as you progress. It should notbe a one-off event. Ideally the action plans you start should become part of your businessDNA and a natural part of your day-to-day activity. Remember the old adage; Failing to plan means planning to failAbout CEI Compliance ConsultancyOur Consultancy, with its expert team of business management consultants will act as your out-of-house ‘in-house’ management team, whether on a project by project or on a long-term basis.We will help you manage your business to optimise your opportunities.Having been involved in Strategic Planning and Risk Assessment with the Boards of Directors ofwell-known companies, we have also been involved in developing the Operational and Tacticalplans that implement the “vision”. We can provide on-the-spot support and guidance for the7|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  9. 9. length of the project, from when it is a twinkle in the eye, through to the launch and up to itssuccessful embedding.With our select team of experienced strategic planning consultants, our consultants will help yougenerate the business strategy and will guide you through putting in place the necessaryeffective and precise strategic process that is targeted to ensure your product or service has theright backing, the right positioning and the right promotion to provide sustainable success.Whatever the size of your business, from start-up to international company, specific objective strategicplanning support can provide the crucial difference which will mean that resources areconcentrated constructively, energies are focused creatively and the outcome is fully profitable overthe long term.Companies we have been involved with in the last 10 years; CEI Compliance can help provide a full compliance support service, reducingrequired management time, ensuring all areas are up to date and working for your firm’s long term benefit. Call 07092 289901 today or go online at help call:Lee Werrell – FInstSMM Chartered MCSI Cert PFSManaging DirectorCEI Compliance|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689
  10. 10. Web:|PageRetail Distribution Review: Don’t Fail To Plan v1.0 June 2011CEI Compliance Limited Tel 0800 689 9 689