Fiona Murphy takes a look at how advisers are adjusting to life after the Retail Distribution Review in this month's Inquiry
When RDR loomed on the horizon last year, it felt as if advisers only had to struggle to the December deadline and that would be it. However, even after the initial hurdle has passed, many advisers have work left to do.
In this month's Retirement Planner Inquiry, we asked advisers to tell us how they are progressing with RDR and the challenges they continue to face. We sent the survey via email to our readers with 168 advisers taking part.
In our first question we asked: Are you RDR compliant? The majority of IFAs (73%) confirmed they were. 11% said they have all their qualifications and will soon finalise their proposition.
A further 9% are leaving the industry as a result of not taking qualifications. Meanwhile, 5% focused on earning qualifications last year and will start to work on their business proposition in 2013.
Concerns and challenges
So given that many advisers still have work to do to become fully RDR compliant - is this a cause for concern?
Prudential distribution change director, Russell Warwick says: "We have to clarify what we mean by ‘RDR compliant.' Anyone who doesn't have their qualifications isn't trading. What I hear from advisers is ‘we have a very rough and ready proposition. Is it what we will have in six months' time? Probably not.' I would translate that not as trading incompliantly but having a quick interim agreement in place and interim charges. That will be refined over the next six months."
Next we asked: What have you found to be the biggest challenge you have faced with RDR? Over a quarter (27%) said developing a business model was their biggest challenge. Over a fifth (23%) said qualifications, while a further fifth (21%) said communicating the change to clients. 14% said the shift from commission to fees was their key challenge.
Other challenges highlighted included administration, updating marketing literature and dealing with different procedures from different providers.
Another key theme was the difficulty of dealing with existing clients. Warwick says: "[Advisers say its] difficult to look at [charges] against an existing client where I have got some trail commission coming through and trying to adapt their proposition to fit the unique circumstances of their existing remuneration agreements. It is a much bigger challenge for advisers than what they assumed beforehand."
A good thing for the industry?
Finally, we asked: Do you think RDR is a good thing for the industry? Just under half (49%) said no while a third (34%) said it was. However, 17% were undecided.
Those who said ‘yes' welcomed greater professionalism and a growing advice culture as opposed to a sales drive and transparency in the industry.
One adviser praised: "A clean up of dinosaur processes. Advice from some established advisers needed to be addressed and though initially many very capable advisers have taken early retirement or left the industry, the next generation of advisers will be a much better fit to our current and future investment needs."
Another added: "It makes advisers think about the value that they really provide, and helps them to focus on cost, time-management and profitability. It directs clients to understand the value that we give, and that the bit they ‘see' is just the tip of the iceberg in terms of what we do."
However, one divided adviser described RDR as a curate's egg. He said: "Qualifications and removal of commission [are good], although this is being done in an absurd manner. Poor areas include the negative connotations with independent and restricted . Restricted IFAs can still be independent of life offices. If restricted was renamed specialist, that would be an improvement."
However, other advisers were concerned by middle income earners priced out of the advice market. One said: "A lot of middle income families will not get advice, especially on ISAs and collectives. They will go direct to one of the big companies with a sales force."
One adviser said: [RDR has] "good intentions but it seems poorly executed and from talking to other friends in the business, it will exclude many from being able to access financial advice and lead to the mass market being pumped with poor products on a direct offer basis. I have also found that rising regulatory costs have finally meant I have had to increase my costs that I pass on to clients."
Another warned the industry was losing out: "I have been doing my job for 25 years and never had a complaint but because I have failed exams, I am now considered not able. Disgraceful!"
Other responses included client aversion to fees and the dangers of one arrangement to fit all adviser firms. Others were concerned that despite the drive for transparency, rogue advisers would go underground.
With regards to fees one adviser explained: "As a firm which was already fee-based, our clients have struggled to understand the change which they interpret to mean that their fees will be higher as a result of changes to commission [i.e. their investments will generate zero or less commission to offset against fees]. We are unlikely to recommend adviser charging structure for on-going fees due to the capital gains tax implications on OEICs and bonds and this may result in clients being unwilling to request an on-going review due to the associated fees."
We had a real mixed bag of responses from the RDR converts to the critics. Warwick says: "When you talk about a package of changes, it is very difficult. On balance, it is a good thing. Does that mean I think everything is perfect? No I do not, there are areas industry, regulators and policymakers have to work on, such as customer access, which worries me. Certainly more work is needed. You will get a difference of opinion because it depends on where advisers' business models were beforehand.
"To spend a huge amount of time doing things, unproductive in terms of driving your business forward, you are going to be very disheartened by that. It is an hour you can't be spending with the customer."
However, as a lot of advisers agreed it is still early days. The real impact of RDR will not really begin to bite until the next few months at the very least. At the moment it is the beginning of a long process where advisers will find out what works and what doesn't and what is best for their clients. The financial services industry and the regulator should not forget that and they have a duty to support advisers.
What have you found to be the biggest challenge you have faced with RDR?
• Administration and different procedures from different product providers
• Change of ownership of the business
• Charging a viable amount for low-cost, pre-packaged investment products
• Dealing with all of the marketing literature and negativity dealing with the administration that RDR has created
• Developing and communicating are equally challenging
• Fighting my way through the utter waste of time caused by the ill-thought-out rules, as well as wasting time on the qualification
• Finding providers to work with who support adviser charging
• FSA intransigence
• Getting providers to know what they are doing!
• How to treat legacy clients for whom we already had an agreed review process and business proposition based on receipt of trail commissions which may now be lost
• Just fed up of unproductive regulation and costs.
• Our target market would not be considered to be of a high net worth. RDR does not suit the majority of the general public, it never will and will only serve to alienate those that need professional assistance even further
• Working out why the FSA took more than six years to reach RDR day and even then they were not ready with yet more consultation documents still outstanding while the UK economy and all of its banks were falling off a cliff due to poor regulation
F&C IT's 150th anniversary
First meeting for Powell
Red tape and tech driving consolidation
2019 Survey opens in June