Despite the retail distribution review (RDR) coming into force on 31 December 2012, a higher number of advisers feel the uncertain economic climate will have a more significant impact on business in 2013.
A survey of delegates at the New Model Adviser® conference found that, while 37% believed the RDR would have the biggest effect on their firm over the next 12 months, 43% said tough economic conditions would be a more significant issue (see graph below).
Financial Services Compensation Scheme (FSCS) levies were the biggest concern for 17% of respondents, and 3% said the advent of auto-enrolment would have the biggest effect on their business.
Economic concerns abound
Where the economy was concerned, advisers were unanimous in being worried about the negative impact it might have on their businesses.
Leigh Tarleton (pictured above), managing director of St Helens-based LS Wealth Management, said his clients were anxious about low interest rates and the economy failing to recover.
‘[The economy] directly affects my clients...their number one concern is what their ISA, their pension [etc] is worth. And so, if the economy falls and interest rates take a turn, that’s when the phone goes red hot because everyone wants to know what they’re worth,’ he said.
John Millican, managing director of Colchester-based Fiducia Wealth Management, said he was keeping an eye on the German elections for their impact on the eurozone.
Alok Dhanda, principal of Newcastle-based Dhanda Financial, said the economic climate closer to home meant that some clients were struggling to afford his services. ‘It’s not exactly buzzing in the North East… you see it in property prices, you see it salaries,’ he said.
Mixed opinions over RDR impact
On the RDR, the results were split between those who viewed the reform’s impact as a positive and those who saw it as a negative.
Jarrod Ellis, adviser at Hertfordshire-based Delta Financial Management, said the transparency the RDR had brought about would be a positive but that in certain circumstances, it could prove more expensive for investors.
Ellis said the ban on fund manager rebates on platforms, and the subsequent move by fund groups to issue clean share classes, would result in legacy issues that in turn could cost the client more to resolve. ‘Transparency seems to be coming at a higher price,’ he said.
Sheriar Bradbury (below), managing director of London-based Bradbury Hamilton, viewed the RDR as a positive.
His firm has already acquired two advice businesses in 2013, and he said he expected it to make more acquisitions as advisers exited the profession due to regulatory upheaval.
In the build-up to the RDR deadline, critics of the measures had argued that clients would not understand the changes and be put off by fees.
However, this has proved not to be the case. According to the survey, 70% of delegates said their clients were indifferent, 25% said their clients had reacted positively and only 5% seemed put out by the changes (see below).
Jason Stather-Lodge, chief executive of Northampton-based OCM Wealth Management, said his RDR communication with clients was largely reassurance.
‘The RDR to me and my clients was more a case of reaffirming the fact we’re still going to be here post RDR… we just wanted to make sure they were comfortable knowing that nothing [about our service] was going to change,’ he said
Increasing business costs
Trevor Smith, financial planner at Hampshire-based Clarendon Financial Planning, said the RDR was less of a concern than FSCS levies and professional indemnity (PI) insurance.
‘They are things that are not really under our control,’ he said. ‘The rest of it we can control.
‘We can control client expectations and how much we charge them. The RDR hasn’t really had an impact because we were fee-based before. We were also qualified. But we have lost control over the FSCS levy, which has become really onerous recently.’
Prospects for smaller clients
Advisers were split into two almost equal camps over whether the RDR would affect their ability to look after smaller clients.
A small majority, 53%, said it would not have an effect, while 47% said it would; 24% said they planned to stop looking after these clients, and 23% said they could continue to service such clients but would have to alter their service proposition. (See graph above).
Neville Pereira (pictured above), director of London-based Lubbock Fine Financial Solutions, said his firm would have to drop some smaller clients but that this phenomenon was not unique to financial services.
‘We will have a situation where clients will fall away,’ he said. ‘You don’t go into a City firm of accountants or lawyers [and see them] being concerned about smaller clients. You can either afford the fees or you can’t. That’s the reality.’
In contrast, some firms regard smaller clients as an opportunity for a new business venture or updated proposition. Throughout 2012, advisers and providers alike announced plans for execution-only services and restricted offerings with the aim of reducing the cost of advice.
For example, OCM Wealth Management has traditionally catered to high-net worth clients, but chief executive Stather-Lodge said he would launch a service for those with smaller portfolios as there was a ‘vacuum that won’t be catered to’.
Stather-Lodge said his firm was currently in the late stages of executing a new proposition for smaller clients and would launch it shortly.