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Why myriad RDR charging systems are proving a challenge
by Tim Cooper on Jan 25, 2013 at 12:49
Many firms are still struggling with compliance as some face loss of cashflow and difficulties with the huge variety of adviser charging systems providers have set up. David Rouse (pictured) and Andrew Peters voice their concerns among others.
The retail distribution review (RDR) may be a positive step for the new model adviser movement, but many regulation details were only ironed out at the last moment. Now the deadline has passed, many advisory firms are still struggling with the finer points of compliance and how it affects their business.
Among the most pressing problems is the loss of cashflow, as products on which advisers may still have been taking initial commission turn it off or offer adviser charging facilitation (ACF). Even some largely fee-based firms are anticipating cashflow problems as commission on products, such as employee benefits and structured products, switches off.
Adviser charging difficulties
The move to ACF is proving to be the most difficult area for many firms because, although it is largely an administrative problem, if they do not get it right, advisers will not be paid.
The biggest issue is that each provider or wrap is handling adviser charging slightly differently. David Rouse, principal financial planner at Friar Gate Independent Financial Services, says: ‘The challenge we’ve faced is dealing with the differing requirements of all the product providers. Some of them altered the parameters in mid-December but didn’t adequately communicate the proposed changes and the timing of them in advance.’
Andrew Peters (pictured above), director of Deep Blue Financial, agrees that the changes in providers’ systems have thrown up difficulties. ‘There are problems and unclear issues regarding the processing of new business because the providers’ systems have changed considerably and we are retraining for these,’ he says.
In contrast, Bob Wilson (pictured below), director of GreenSky Wealth, thinks ACF will boost profitability in one area: annuities.
‘Previously, if you were dealing with a pension annuity purchase of less than £70,000 to £80,000, the commission from the provider didn’t cover the cost of the advice,’ he says.
‘So you would either take it on the chin in the hope that other business would be generated from that client, or ask the client to pay an additional fee. The new adviser charging allows you to choose the amount you are paid from the annuity provider. So the client has the option of paying a direct fee or allowing it to be deducted from the pension pot.’
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