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How to plan a successful post-RDR strategy

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by David Shelton on Nov 22, 2012 at 14:41

Many IFA firms are still deciding whether to operate as a generalist or a specialist post-RDR, and the market attractiveness matrix is a useful framework for undertaking this evaluation

As the retail distribution review (RDR) deadline approaches, many financial advice firms are thinking about their service proposition to clients. This tends to be a combination of high-level statements of ‘what we do and how we do it’ combined with detailed service schedules to answer the client question: ‘What do I get for my money?’ These are important but are only part of the analysis of where to operate in the market and whether or not to specialise or operate as a generalist.

Consideration of the latter involves an analysis of product markets from the perspective of attractiveness and business capability. In terms of the decision on whether to adopt a restricted or independent model, this is particularly important because IFA firms do not want to withdraw from markets that are attractive and profitable any more than they would wish to remain in markets where they are not competent.

Read on for how to create a fool-proof framework going forward...

David Shelton is an independent consultant at Stoke Bishop Associates

A framework for evaluation

To work out what action to take, IFAs need a structured approach that will enable them to evaluate their current position and identify what steps to take if they wish to change position.

The market attractiveness matrix is a useful framework for this exercise. It is based on two dimensions: your view of the relative attractiveness of individual product markets or specific services and your assessment of business capability. The aim is to be as objective as possible and consider the market and your business from a broad perspective.

A balanced assessment

The assessment of market attractiveness is based on the following considerations: profitability, market size (volume and value), rate of growth, pressure of competition and style of regulation. You need to combine your view on these to rate the attractiveness of the market as high, medium or low. The assessment of business capability follows a similar approach, with the dimensions being market knowledge, understanding of legal and regulatory rules and complexities, technical and advice skills, and administrative capability. All advice businesses subconsciously undertake this analysis when they decide whether or not to enter markets. The matrix method simply requires a more explicit approach.

Diagram 1 provides an example of what this could look like, but note that this will be different for different businesses. There is a combination of pure product markets, such as ISAs, and areas of financial planning which are discrete but typically require a combination of products, such as retirement planning.

Different firms will have differrent views on the attractiveness of markets and different business capabilities. So this example is not typical or best practice; it merely shows how the model works. The selection of products or discrete markets depends on the business, but you should include all your current markets and any that, realistically, you would consider within the next two-to-three years.

When positioning products, the question to ask is: ‘Where does this product stand relative to the others?’ That should help you place individual products in the right boxes.

Everything in its right place

When positioning products, the question to ask is: ‘Where does this product stand relative to the others?’ That should help you place individual products in the right boxes.

When you have decided the relative position of product markets on the matrix, you can take a view on how to react. Which markets do you sustain, which do you grow and which do you pull out of?

Diagram 2 summarises the generic strategic responses for each section of the matrix. It is normal that products or markets on the top row (high market attractiveness) should be built to move to the top right and keep them there. ‘Building’ normally means training and developing a detailed understanding of the market.

Products on the bottom row are typically declining but it is important to consider the rate of decline and how significant those products are to your business. In general, you might not commit a great amount of investment to them, and you might exit or outsource those in the bottom left, depending on the clients’ needs.

The middle row requires a degree of judgment that often depends on the time scale you are considering and the current importance of the product or market to your business.

Reviewing the business model

If you are reviewing restricted status, this model can be helpful when considering the relative importance of products, particularly those regarded as higher risk. This will give you a framework for the debate because, in some cases, you may have access to clients for whom these products are important, which could contribute to a high market attractiveness rating.

The issues around business strength would be very important in terms of compliance and regulatory requirements, as well as the technical understanding of such products, and for which clients it is appropriate to consider them.

You should use this model as part of your work for finalising your proposition, service schedule and where your business is positioned in the market. It should support what you are offering to your target clients and help determine your approach to independent or restricted status or, if you are using a panel, the high-level structure you adopt.

David Shelton is an independent consultant at Stoke Bishop Associates

8 comments so far. Why not have your say?

John Phillips

Nov 22, 2012 at 15:36

Buy a boat and go fishing

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Hugh Jars

Nov 22, 2012 at 15:51

@JP... What?? and be subjected to the Dogma and Dictatorial Mumbo Jumbo of the EU Fishing Quotas?....

Rather stay and battle it out with the FSA >FCA >FSCS>FOS> etc etc :-))

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John Phillips

Nov 22, 2012 at 16:15

Scrub the first idea, buy a Trident sub, there are 4 going cheap and threaten the FCA with annihilation if they don't play ball.

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Run_and_hide via mobile

Nov 22, 2012 at 16:28

Set up a claims company specialising in Financial Services claims, i am sure i will be very busy post RDR when 80% of IFA clients are dumped ( you are not profitable anymore, so you are dead to me).. Happy days decoding those carefully constructed suitability letters.. Happy days, many will need to go undersea in a submarine or even change identities... When the claims start coming through thick and fast..

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John Phillips

Nov 22, 2012 at 17:16


You're not wide of the mark there at all. Given that 60% of investment clients stated they didn't know they had paid commission to the advier, just think of the opportunities for the next mis-seling scandle I can see the T.V. adds now.

"Have you ever been anywhere near a Bank?" "Have you claimed your share of the £100,000,000.00 the Banks have set aside for you?" "Don't worry if your investment was successful, you can still claim" Phone Financial Service Claims are Us on 0888,888,888.

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Arthur Schopenhauer

Nov 22, 2012 at 21:59

Of all the careers available there maybe one more attractive better appreciated and where making a profit is admired. Spoilt for choice !!!

change was required and change they are getting vote with your feet have a sabbatical, meet your family and come back in a year or so when they have rules that may be able to be understood

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Ian Lees

Nov 23, 2012 at 09:09

Our local Post office is recruiting - they apparently do not require to be able to speak english ( or the ability to read - it appears as I received another letter for another postcode today ) . There are so many jobs as consultants and personal trainers - no qualifications required. It is interesting to see the problems of loss of business in insurace highlighted in the FT yesterday - as a result of regulation. I expect the FSA to collect another Fine from UBS etc., and standard life taking up 29% of an insurance company in India - hope itsnot a - " test match . . ?" ( or as we call it Vesta ! )

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Darren Lloyd Thomas

Nov 23, 2012 at 09:30

Really good article and very enjoyable. Intelligent and well researched - thank you NMA for getting Mr Shelton on this. People will stop offering up articles like this is we collectively slam them. The only concern I had when reading was that restricted advisers will be calling themselves 'specialists'.

Sounds horribly like the depolarisation situation all over again. 'Well Mrs Smith, would you like to see a boring old generalist or an investment specialist like me'.


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