11 January 2013
So finally the RDR has stopped being a big industry debate with all the risk of navel gazing that entails. Instead it has become something of relevance to the UK investor and savers.
As we have discussed on a previous Space 01 thought, for all the preparation, this reform didn’t really start until customers and clients were plugged into it. In fact it will really start when clients are asked to pay for advice under the new system.
It is true that some clients will have had some time to adjust as their advisers adjusted the payment models gradually – and those paying pure fees may not notice much difference – but very many clients will see a big change. How they react could determine the success or otherwise of many advice firms.
Maybe the lack of complaints from advisers about the RDR since the turn of the year is a good sign. They have saved their wrath for a particularly controversial knighthood. So we’re going to stick our flag in the optimists’ camp – at least until we see some solid research on the matter – and hope that most firms are in a reasonably good place.
But we still think that clients may have more of a role to play.
We have heard a lot about advisers shedding clients and keeping the valuable ones, a lot about different levels of service – let’s say for argument silver, gold and platinum dependent on assets invested – maybe with a self-select execution only service tacked on as well.
But what if clients are resistant – not so much to adviser charging in principle – but to the options they find themselves presented with. They may not want to pay a retainer or they may have ‘platinum-level’ assets, but only want one annual review that comes with silver service.
We also wonder whether adviser firms have really worked out how to manage the service and compliance for those who want to do a bit of self-selecting and do the client equivalent of ‘turning up on the doorstep’ when they want to tidy up a portfolio or sort out the pension. There are certainly admin and compliance challenges to consider.
In other words maybe clients won’t want to be placed into the nice, simple, easily-serviced boxes. If some clients do put up a little bit of resistance, advisers have two choices. They can tell these slightly awkward folk to seek the help of another firm or they can meet them halfway in terms of flexibility.
We think IFA firms have always taken this flexible approach in the past, so they may incline towards doing so in future, but the pricing has to make it worth their while.
Whatever happens, we think this could dictate a lot about the future shape of the IFA market and, of course, alters the way in which providers and support services help advisers do this too.
In the course of this year, we’ll be talking to advisers and asking how much clients have adjusted to the new system but also how much clients have adjusted what is on offer to suit themselves.
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