A new report on the RDR makes for gloomy reading, depending on the size of the firm you work for...
There have been a number of gloomy reports detailing the fallout from the Retail Distribution Review (RDR) in recent months, including one released in July by the Financial Conduct Authority (FCA) registering a 9% drop in adviser numbers.
Just last week a report commissioned by advice firm, Foster Denovo, found that 8% of those advisers still trading expect to cease over the next three years. In addition, some 43% said they think it will be difficult to maintain profitability over the next 12 months.
In addition to these worrying - but, arguably, unsurprising - findings, 23% of firms said their profits had remained flat or decreased since the implementation of RDR and 40% of those questioned said that the increased capital adequacy requirements pose a real risk to their business.
Holding the middle ground
To make matters worse, it is possible that fewer advisers will survive their difficulties than expect to.
Although 23,787 advisers thought they would be in operation following the implementation of RDR, just 21,684 advisers were actually operating at the end of July this year.
So what does this report indicate about the future of the industry, were there any positive findings, and what is to be done by the advisory community, if anything, to combat their problems?
Medium sized firms
One interesting and indicative finding was that both small and large firms (fewer than 50 or 500 to 1,000 clients respectively) are faring worst since RDR - in that they are seeing a decrease in client numbers.
Companies occupying the middle ground, however, have seen an increase in client numbers although the percentage changes are slight. In addition, these medium sized firms are more likely to expect to pick up work through new clients over the next 12 to 24 months (some 39% of those questioned overall) through auto-enrolment, for example.
Foster Denovo chief executive Roger Bosch said: "These were interesting results, although not particularly surprising. The smallest companies simply don't have the resources to create economies of scale necessary to cover costs that are fixed and rising such as professional indemnity insurance the FCA fees and the FSCS levy.
"At the larger end you have networks - these tend to have thousands of members.
"To have successfully transitioned in preparation for the RDR, to create a workable post-RDR model, you need buy-in from staff. The problem with networks is that they have quite a different model from nationals or other advisory firms culturally.
"Advisers are ‘members' in quite a loose sense it is very difficult to create the sort of company-wide change of systems and processes required to make a company viable in today's market. They just don't have the requisite influence on their members."
He added: "To create economies of scale there a number of parts of the business need to be automated. It will need to acquire a centralised technology support system, a consistent proposition and a stakeholder-type community."
Foster Denovo: How to grow a firm succesfully
- Automate as many processes as possible, Foster Denovo have done this by building a centralised support system and creating a set of processes that mean advisers provide a consistent proposition
- It is important to maintain a strong culture; this can be damaged if a company grows too quickly.This is helped by starting out with clear values and principles, this makes it easier to benchmark the progress - it 'creates a moral compass'.
- The staff are all stakeholders in the business meaning they have a strong interest in making it work.
- With scale comes opportunity, but the challenge for any smaller business is bringing in more resource and making sure it is a good fit. This is helped by the focus on a business culture.
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