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Five themes that will shape success in the RDR world

New model firms may have been better prepared than most for the RDR, but all advisers now face a challenge, writes Chris Davies of Engage Partnership.

While new model firms may have been better prepared for the retail distribution review (RDR) deadline than others, all advisers will face similar challenges from the new world order.

In partnership with Capita Financial Software, we conducted a survey of 110 regulated adviser firms, covering key strategies that needed to be addressed before the RDR deadline. The results showed that while firms have done enough to survive the deadline, many are not in great shape.

We found five themes that will determine success or failure.

Future proofing the business model

To thrive in a relationship-driven economy, firms must ensure they have robust risk-management strategies, can adapt to market and regulatory directives and are client-centric.

However, up to a third of those surveyed were not confident in their strategies. For many, this is just the start of a new charging process.

Firms need to test and retest their customer-agreed remuneration strategies. They must take a view on charging clients directly rather than relying on products to facilitate this. This means honing meeting skills and service propositions, and becoming a consultancy business.

Adviser charging facilitation

The survey found that advisers either did not understand or were not confident with using adviser charging facilitation (ACF). Unresolved issues included:

  • problems with providers’ ACF validation processes;

  • potential conflicts of interest in cases where providers do not support a profile or style of ACF;

  • difficulty weighing up the pros and cons of ACF versus direct charging.

On these issues only half of those surveyed said they felt confident.

Uniform advice processes

Most firms believed their services were client orientated but were less sure when asked specifically about advice suitability and risk profiling.

The research also indicated many business models are transaction based with little uniformity in the advice processes. Some firms were reluctant to abandon old-model transactional business models, were overconfident in client loyalty and lacked clarity over the adviser charging process.

Back, middle and front office support

Business support systems that are RDR ready brought a mixed response. Whilst the majority of respondents said their back office system was RDR ready, there appeared to be a lack of confidence in the capability to support technology and research tools and front office functions (the advice process).

Nearly 45% were not sure whether their compliance functions met regulatory corporate governance standards for tracking the firm and adviser RDR progress.

One in four firms (26%) worried there would be failures regarding statements of professional standing, and 44% were not confident their management information systems were adequately tracking progress on professional development.

Firms must revisit their operations and business support to ensure all regulatory needs are covered and training requirements met. Business support tools can help to facilitate good advice suitability, relational risk management and potentially increase the firm’s value.


The communication section of the survey scored the lowest, meaning important areas such as managing clients and the regulator need to be addressed urgently. Only 50% of firms were clear about the type of client relationship they wanted and less than half (48%) felt their clients understood the service proposition. Only 26% felt communications received and given by the regulator were satisfactory.

The new relationship economy demands brand building, enhancing the client experience, and leveraging client communication strategies using social media, search engine optimisation, and designing a service that clients will value.

With 40% of respondents unsure of how their business differs from the competition, there is a need for firms to build and focus on relationship capital, not financial capital. This will encourage businesses to move away from chasing trail incomes and the financial value the client offers. This only promotes short-term thinking.

Progress is being made but there is still much to do. By looking at themselves through their clients’ eyes and building services around the relationship the stakeholders (and regulator) want with the firm, a business can not only increase its value, but also ensure continued compliance with the RDR.

Chris Davies is director of Engage Partnership.