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Why myriad RDR charging systems are proving a challenge

by Tim Cooper on Jan 25, 2013 at 12:49

 Why myriad RDR charging systems are proving a challenge

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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5 comments so far. Why not have your say?

Paul Barnard

Jan 25, 2013 at 13:19

If only this had been ushered in over, say 4 years instead of in just the last 6 months of 2012.

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Sam Caunt

Jan 25, 2013 at 13:51

It is a nightmare at present. Not having to deal with the minutiae of the situation the FSA has failed to appreciate the damage it has done at least in the short term. For example, having dealt with real situations, we have decided to move all our Cofunds clients to clean asset classes and get rid of recurring income. Why? Because it is too costly, muddled and bewildering for the client when we do reviews or carry out rebalancing unless we do so.

We also have to consider (and therefore document) whether it is in the interests of the client to keep any of their existing pre RDR investments or whether it has influenced (biased) on-going advice. That is not easy. As Bankhall put it, you have to assess whether the product remains suitable (and the service(s) you are looking to provide represents value to the client) once all charges are taken into account. Messy.

New clients’ assets are taking much longer to review. For example if you want to pick up the trail of pre RDR investments you have to offer an equivalent service to what they previously got in order to receive it. Then you have to look at the charges across their investments.

Post-RDR, the best way to ensure that any recommendations can be described as ‘product neutral’ (and not influenced by any commission that continues to be paid from a legacy asset) is by offsetting’ the cost of any adviser charge against any trail commission that continues to be paid. Who will do that?

Then each provider does their own thing.

Two things are self evident. True advisers providing compliant, TCF friendly on-going advice will find their costs going through the roof, at least in the interim. Secondly, kiss “trail” good-bye.

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Paul Barnard

Jan 25, 2013 at 14:02

I have just received a note of what Sharon Bowles, MEP has been up to. Here's a link:-


Apparently everyone thought that hourly fees would be the norm (no, they didn't) and she wants to campaign so that we can only charge a "fraction of a percent" for our services.

Is this RDR 2? If so, time to sell up and go and leave it all to Ma.

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Paul Barnard

Jan 25, 2013 at 14:03

The ultimate twist of irony would be that Sants, in his new role at Barclays, actually fights against this!

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Belmarsh Solitary

Jan 25, 2013 at 14:30

If only this could be ushered out again in say 24 hrs.....

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