The Retail Distribution Review will bring seismic changes to the financial services industry and there is understandably widespread anxiety about its consequences. However there is a more positive way of looking at it; RDR provides an opportunity for proactive firms to gain an advantage over their competitors. Here we provide our guide to getting ahead in the post-RDR world: both for companies and individuals.
1. Flight to quality providers
The move to higher professional standards was badly needed in the industry, which has lost credibility in recent years. The Association of British Insurers found that two-thirds of people thought financial advice on pensions, savings and investments was worthless.
The new focus on the consumer means clients can trust qualified advisers to give truly independent advice. There will be a sharp distinction between IFAs and advisers only allowed to offer a limited range of products and providers. This will mean a flight to quality providers who make services transparent.
Individual IFAs need to take responsibility for attaining their qualifications. Companies will not carry people and passing the exams requires drive and determination.
2. Advantages of the new pay structure
There is an argument that the switch to charging consumers an up-front fee means only high net-worth individuals will seek financial advice.
But RDR also brings an opportunity to create new pricing policies with broader value-for-money appeal. A lot of fund managers have anticipated RDR by introducing commission-free fund share classes. Savvy firms will continue serving less wealthy clients by developing execution-only services alongside their full advice offer.
If your company is still scrabbling around to pull together a fee-based proposition, you should seriously consider moving to a company which is ready and sailing in the right direction. Contact IDEX for advice. There will be IFA companies that survive and others that do not – it is as simple as that.
3. Developing a strategic focus
The famous phrase “If you fail to plan, you plan to fail” applies perfectly to RDR. Companies need strategies based on close analysis of all the opportunities and threats it poses.
First, firms have to be clear about where they offer added value and then use that insight to make long-term plans. The best firms will focus on innovation and finding alternative ways to serve average consumers.
Second, firms must ensure they communicate the advantages of their services and remuneration models in the clearest way possible. The key to surviving in the post-RDR world is to embrace the spirit of transparency for the consumer.
Third, company bosses will play a major role in developing a visionary strategy. They need a clear-headed assessment of both their own and their competitors’ strengths. An ability to implement complex long-term strategies will help companies stand out in a crowded market.
Finally, changes should be made with all possible haste. The best firms are preparing rigorously for RDR and will hit the ground running on January 1st, 2013.