Engaging with the RDR

With the release of the FSA's Policy Statement 10/6 in March, the momentum within the whole RDR initiative notches up a gear.  This takes us past the previous Consultative Papers and moves us more towards the detail of implementation.

Barring some totally unforeseen eventuality, the RDR is going to 'happen', and it is therefore worth teasing out some of the themes and issues that we'll need to contend with over the next three years:

1. The RDR will threaten some IFA firms.  Our diagnosis is that their business models were probably, in any case, unsustainable. For such firms (those unwilling to adapt), all the RDR will do is hasten the inevitable.
2. The FSA has very probably underestimated the compliance costs of the RDR.  Our own experience of the Regulator's research into intermediary firms indicates that, very often, estimates for costs were simply grabbed out of thin air.  It is likely that the total cost of implementation may be as high as three times the original estimate - the message for IFA firms is that we cannot hope to make the transition without a concerted commitment to the process.  Our profession is going to change radically - it needed to do so, it was long overdue for such a transformation, and the cost is at this stratospheric level, because we left the initiative to the bureaucrats.
3. Most IFA firms are currently focused on upgrading their qualifications - but they are not imminently focused on implementing a new charging structure (a la 'Adviser Charging').  The evidence is that such firms will be missing a very significant trick - altering our remuneration model will affect how we deliver advice and services, how we select and recommend products, and how we engage with our clients.  If we defer our strategic planning on charges until the last minute, the danger is that we will botch our entire service offering.  2020 Financial Services' Members will be pleased to know that our national backoffice infrastructure includes possibly the best framework for fee-based advice currently available in the UK, so you can be 'RDR-Ready' now.  Please click here for more information.
4. The RDR will alter the market for certain kinds of products - for instance, one wonders where, in the 2012 world, we'll find a place for investment bonds, in preference to alternative wrappers for holding collective investments?  Our own research to date indicates that relatively few intermediaries select investment bonds on the basis of the specific characteristics of the tax-wrapper.  Theoretically, at least, the RDR appears to be expanding the IFA's access to investment products or asset classes - given that these may, potentially, include ETFs and SCARPs, great care needs to be exercised when designing your own in-house investment proposition.
5. The RDR will not be implemented consistently - in that pure protection products look like remaining outside the new 'adviser-charging' framework.  This is an odd anomaly, given that the FSA has already identified in its 'Financial Risk Outlook for 2010' that intermediaries may now be advising on products that they do not fully understand, to replace areas of advice that have died a death during the credit-crunch.  Apparently, there are 'good reasons' for this somewhat schizophrenic approach towards implementation, which leaves financial-planners in an interesting position as they seek to straddle two entirely different remuneration models.

2020 Financial Services' Members should be actively grappling with the issues now.  The latest version of our Best Practice Platform includes a thorough discussion of the subject, starting on page 99 - and new, practical implementation tools are on their way!

2020 Financial Services is delivering the 'Transitioning your business to a new world' workshop at the ICAEW Financial Planning Conference on May 24th 2010.

Please click here for more details