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Why RDR demands your service is not a turn-off for clients

by Brett Davidson on Jan 17, 2013 at 14:03

Why RDR demands your service is not a turn-off for clients

With clients now able to turn off ongoing revenue, IFAs must ensure their proposition is outcome-focused and provides value for money to ensure their long-term survival, writes Brett Davidson of FP Advance.

The retail distribution review (RDR) has caused an explosion of activity and thinking, much of it well overdue. The issue of qualifications received the most attention, which was not surprising given the threat to advisers unable to meet the demands. But the most interesting issue has been the change to business models, and that is not over yet.

It seems to have only just dawned on some advisers and firms that the biggest threat to their business is coming this year, and it is not fee charging. Most advisers accept that clients will pay fees if they offer something of value. The big question for 2013 and beyond is: will clients keep paying?

Ongoing revenue at risk

The RDR enables clients to turn off advisers’ ongoing revenue. For many IFAs this will become a growing problem as more new business falls under the new regime. Even legacy business will eventually be subject to the new rules, putting existing revenue under threat.

It is possible that the adviser-client relationship will withstand this threat, as it has many other threats in the past. The annual review meeting is perceived as pretty high value, but its content can leave some clients feeling as though they have had a cup of tea and a chat. Will they be willing to pay £1,000, £2,000 or £10,000 per year for this?

When clients see their charge of 0.5%-1% of assets under advice converted into pounds, this might be the question they ask themselves. If they conclude they are not receiving value for money, they may withdraw their custom, thereby cancelling the adviser’s ongoing revenue.

This will not start with a call to the adviser; the client will go straight to the provider that administers the revenue, making it difficult and time consuming for the adviser to rescue the relationship and the fee (if it can be rescued).

Polarised business camps

If this scenario plays out, the once predicted 20%-30% decline in adviser numbers may take place, albeit slowly, over a three-to-five-year period. The businesses remaining may start to polarise into high-value and low-value advisory businesses.

High-value firms are not concerned about these issues because they have a robust offering for their clients that will continue to justify a premium price. Their fees are not for managing money for clients but for providing a complete lifestyle financial planning service that delivers an outcome.

Low-value businesses will be those that survive but without a comprehensive and robust offering. When the time comes to sell such a business, it will be difficult to command a premium price for the client bank.

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4 comments so far. Why not have your say?


Jan 17, 2013 at 14:54

I wonder if all of those "great firms" mentioned have paid Mr Davidson for consultancy.....

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Jan 17, 2013 at 15:47

Clients have always had the option to stop paying an adviser by switching to another adviser firm. They simply switch who they are paying unless they wish to do it all themselves which some do and are capable of doing but many are not and simply invest in the latest "recommendation" from every Tom, Dick, Harry and uncle Tom Cobley.

If this is what an investor wants, I say let them get on with it and if it works out for them great but if it doesn't they have only themselves to blame. This is why I don't mess about with electricity, plumbing or (god forbid) gas appliances besides the fact the latter is illegal without the correct regulatory authorisation.

In the meantime I will be focusing on the clients who appreciate our experience, expertise and service. It may not be the best, may not be the cheapest but if it works for both parties, that's a win win situation as far as I am concerned.

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Jan 17, 2013 at 16:01

A recent telephone call with Aegons HO confirmed another, possibly greater threat to our ongoing revenue and that is where the provider turns off the existing trail commission income without notice or even subsequent confirmation to us!

We found out when phoning for a valuation for a clients trustee investment plan and were told we had been removed as agent. When we enquired further the Aegon individual told us that as they had no record of us "servicing" the client for the last 2 years and so they apparently now have a system where they contact the client to see if we should be removed as the IFA.

As it happens the client is a long standing one and good friend of mine and we meet up at least twice per year and we had in fact made contact with Aegon only 3 months before for policy info. SoOn investigating this further Aegon eventually adnmitted they had made a misatke.

Also and what is more sinister is the fact that the client has a trustee investment and hence Aegon would have the client as the SIPP administrators who confirmed they had no record of a letter from Aegon.

Aegon then said they "probably" phoned and were "probably" told to remove us as the IFA which is utter rubbish!

Of course when I questioned them about the trail commissiona and whether they would, if we were really removed, pay it back to the client, they answered that no they would keep it and "the FSA allow them to do so"!

I am yet to get to the bottom of this particular new practice by Aegon as the marketing division were totally unaware of it!

I can foresee companies who are struggling for market share and want to protect or increase revenues adopting this tactic more and more from now on and all under the excuse of RDR demands!

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Jan 17, 2013 at 16:51

I removed Aegon as a suitable provider many years ago due to appalling administration (long before the FSA gor their teeth into them) and it's good to see that their subsequent regulatory fines and compensation costs have had the desired impact.

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