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Six steps to building a future-proof business

Advisers should not let their focus on the RDR deflect them from preparing their businesses for economic and social changes that will have a greater impact in the longer term, writes David Shelton of Stoke Bishop Associates.

Advisers should not let their focus on the RDR deflect them from preparing their businesses for economic and social changes that will have a greater impact in the longer term, writes David Shelton of Stoke Bishop Associates.

The retail distribution review (RDR) has been claiming a disproportionate amount of advisers’ time and effort, often to the exclusion of other issues. But in some ways it is of less long-term importance than current economic challenges. The RDR will change the shape and style of the advice market, but the economy will have a greater influence on clients and their ability to invest and pay for advice services.

Make action plans

Work out what to do in different circumstances. Major changes with major impacts on the business need the most attention. But prepare contingency plans for anything that could be important to the business, even if it is not expected.

These plans need not be lengthy, but the management team should spend some time thinking about what it might do if faced with a major problem.

It is best to review the external environment annually. Unexpected changes occur and have to be dealt with, but a formal review, in a typical three-year time frame, is a way to check your strategy is relevant in terms of how the market is changing.

Here are six threats and opportunities for your firm to look out for and plan around.

Political: General election in May 2015: too early to call outcome

Implication: Current main economic policies continue for at least two years; main sector-related policies go ahead (auto-enrolment, the RDR, twin peaks regulation); steady take-up of Nest and alternatives.

Economic: Low growth and interest rates for at least another two years; low inflation, but unexpected short-term rises; slow pick-up in the property market; employment maintained, but shift to part-time and contract work; unresolved euro problems; global economy remains depressed.

Implications: Fragile consumer confidence; many clients seeking income from savings account alternatives; need for different investment solutions; no clear direction for stock market; pressure on prices, including adviser charging; corporates push back on consultancy charges.

Social: Negative image of financial services sector; people will postpone retirement; lower pace of movement between jobs; many all-adult families as offspring return from study.

Implication: Consumer concern about what to do: increased demand for advice but reluctance to take action; steady demand for redundancy counselling; household income and investing capacity under pressure.

Technological: Increased development of all e-based services for advice businesses; slow but steady increase in the use of online direct-to-consumer services from banks, providers and others.

Implication: Continue to review current software set-up; opportunity to cut costs; develop and promote consistent proposition and brand.

Regulatory: The RDR implemented on time;the Financial Conduct Authority (FCA) and Prudential Regulation Authority established on time on 1 April 2013; the FCA’s scrutiny of adviser charges, service offer and investment proposition in 2013/14.

Implication: Less face-to-face advice available for clients with less than £50,000; increased online and direct services; competitive pressure on adviser and consultancy charges; robust design and management of service and adviser charge policy; capital requirements and increased recurring income lead to more robust advice sector (IFA and restricted).

Environment: Demand for green investments unchanged; the ‘green’ agenda continues to roll forward.

Implication: No change in overall approach to investment policy; undertake sensible green policies that are efficient and environmentally sound.