18th December 2012
Ready or not, here it comes!
New Year resolutions won’t save us now – at any rate, not unless it’s the finishing stages of implementing January 2012’s resolve. After five years of consultation, (and there are days when it feels like many more), RDR implementation finally descends on the UK financial services industry on Tuesday 1st January 2013.
It comes as no surprise - but is everybody ready? Well, not according to a selection of polls being conducted by trade associations, IFA suppliers, insurance and asset management product providers and industry commentators. The word, on whichever street you care to raise the question, is that some adviser firms are significantly better prepared than others.
Let us first tackle the point, what RDR readiness actually means. Is it simply about having achieved the appropriate levels of qualifications, or is it more about ensuring that the relevant client disclosure procedures and the associated systems and controls are in place? Or should the questions be more fundamental? Are clients fully prepared? Have we defined for them and carefully documented for each client their individual investment proposition? Or does it mean all of the above?
For the purposes of this article, let us bite the bullet and understand that by 1st January 2013 adviser firms need to be ready to satisfy the FSA’s requirements, from both technical competence and operational perspectives. Advisers must be adequately qualified, have in place an appropriate basis for client disclosure and charging and operate appropriate systems and controls to support their business and its full range of services.
Anecdotal evidence from a variety of sources suggests that not everyone is as advanced as they need to be.
Simply Biz’s training arm, the New Model Business Academy, questioned 1,322 advisers to discover that 81 per cent of respondents plan to continue providing retail investment advice in 2013. Of the remainder, some 4 per cent stated that they were leaving the industry. The findings also revealed that less than two thirds of those polled expected to have fully embedded adviser charging in their businesses in time for January. Elsewhere, the survey uncovered that 72 per cent of those asked expected to have attained their level four qualifications with no gaps by the end of year deadline, whilst a further 4 per cent envisaged having gap-fill still to complete.
The chief executive of the Institute of Financial Planning, Nick Cann senses that a large proportion of the market may still be unprepared and not have tested its readiness. Indeed, he has been reported as saying that he believes that many advisers have still really to appreciate the impact that the biggest cultural and commercial challenge – the shift to fee-based remuneration – will have on their businesses.
In September the Personal Finance Society conducted its annual survey polling 2,298 of its members. 90 per cent of the respondents indicated that they were personally RDR ready, but this proportion dropped to 80 per cent as soon as they were asked whether they felt their firm was prepared. The remaining 20 per cent identified implementing an adviser charging model and a lack of service and cost disclosure documents as the most common outstanding areas that still had to be addressed. Other gaps included VAT liability, client segmentation and defining the client proposition, as well as the remaining question of whether to adopt an independent or restricted advice model and the accompanying capital adequacy requirements.
If the PFS statistics are a genuine reflection of what is going on in the industry, it is plain that one in five advisory firms needs to get its act together – and pretty smartish! It’s not as though the 1st January, 2013 is a destination – it’s a starting point. My experience is that most of my clients have been preparing for this day for the last two to three years and they would all agree that there is a big difference between being RDR competent and having developed a business model that will both meet the challenges of the post RDR market place and have the ability to succeed in it. Developing the client service proposition, the investment proposition, deciding on whether to in-source or outsource, sales and marketing strategies, HR and remuneration policies, the systems and controls that support the business, the business strategy and indeed the exit strategy are just some of the other areas that need to be addressed - and of course, each of these will evolve over time.
I share the concern expressed by many that some advisers have simply buried their heads in the sand and failed to make adequate and timely provision for RDR compliant implementation. Yet even those that have are not automatically destined to succeed. The world will continue to spin and the industry will not stop evolving, but this is the beginning of the journey for advisory companies - not the end.
Rebecca Murphy, Director - North Investment Partners
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