By 31 December 2012, firms will have to be RDR-compliant and move away from provider commission to a structure where IFAs will receive a regular annual income. This is placing IFAs under a greater level of scrutiny and regulation than ever before to improve the standard of retail investment advice being given by retail advisers.
Soaring RDR implementation costs and potentially falling revenue streams are among the biggest concerns for advisers in this respect. many advisers have signalled their intention to leave the industry rather than meet the RDR proposals, with Ernst & Young predicting the number of IFA firms will decline by 10,000 one year after RDR implementation.
RDR is going to represent a challenge and there are IFAs still in denial about the difficult business model transition that is required, but there are many more that will treat the RDR as an opportunity, and as it doesn’t come into effect until 2012, advisers do have the time to begin to prepare for the transition.
IFAs will also need to reassess their business models and appraise what products they sell. There should be clarity over which area the business wants to operate in, and this process must be change managed effectively. Under RDR, advisers will be remunerated under four different areas, which include; independent, restricted and basic advice and non-advised services.
This is where the technology comes in: without the right software systems to support these business processes, IFAs are likely to struggle to come to terms with meeting the RDR requirements. In fact technology will become a key differentiator for adviser firms’ survival post-RDR, as investment in technology becomes necessary to cut admin overheads and streamline manual business processing.
At the top of the agenda: technology
While it has always been beneficial for advisers to invest in technology to improve on the bottom line, I believe the importance of doing so now is critical to survival in the market. Technology should be seen as an enabler for IFAs to be compliant with RDR for live date, and also an opportunity to reassess business models and look to develop competitive advantage.
The solutions that will move financial adviser firms forward are those which go to the core of what the RDR is about, that is, the needs of the consumer. Technology can enable new interactions for advisers and consumers, meeting their needs by turning financial planning into a collaborative process, an experience that will involve the adviser and client working interactively.
Customers now have a world of information at their fingertips and so subsequently demand advice at a moment’s notice. There may also be an expectation to receive investment advice via mobile phone, and so IFAs need to be prepared to meet these demands. If an IFA can’t help them, they’ll serve themselves.
For most IFAs, a reliance on the software systems owned by organisations who supply software on their behalf, is the norm. This makes perfect financial sense – but can also create a number of problems, for example around data.
IFAs are potentially accessing a number of systems for a number of different reasons. If all these systems aren’t sufficiently joined up, data becomes duplicated. Without a ‘single view of the customer’ IFAs could be accessing inaccurate, out of date or inconsistent information, which not only prevents them from doing their job well, but hinders their ability to up sell or cross sell and offers the potential for non-compliance.
Thinking outside the box
So how will IFAs need to invest in technology? IFAs will need to change the way they manage fees as they prepare to move away from commission. The technology would need to allow for greater reporting in line with FSA requirements on profit and loss, fees data, complaints data, supplementary product sales data, training and competence and threshold conditions – data will need to be uniform and managed to maintain consistency and so that it can be used and analysed intelligently.
Out-of-the-box solutions will not meet these requirements and so IFAs will need to look towards bespoke database development to integrate legacy policy systems with new requirements, or consider outsourcing.
The benefit of investment in a bespoke solution is this that the software will be fit specifically for your individual requirements and budget. IFAs will also find that a bespoke product can be a more cost-effective solution to their technology – but only with the right supplier.
At a time of change it is tempting to keep costs to a minimum, but the long term value is what it most important; deploying the wrong solution at the outset will only lead to great costs in the future.
Outsourcing might seem like a risky move, particularly in terms of an offshore supplier. The key to this will be choosing the supplier which is the right fit for your individual needs, understands your business and can provide support when it is needed.
Costs can be kept in control through a fixed-price based contract. Utilising an outsourced team can enable the IFAs to focus on its core activities, while an instructed team of skilled professionals act as the ‘IT arm’ of the IFA.
Legacy systems – out with the old?
Currently, legacy systems and in many cases paper-based systems, are still being called on to do a job which is far more complex than that which they are designed to handle. If intermediaries are to meet the RDR requirements, they will need to better exploit the capability that technology can offer, and must therefore reassess the systems currently being relied upon.
For those already working with a legacy system there are a number of choices available: re-write the system in a new technology, migrate to a packaged application, maintain the existing system for the foreseeable future or decommission the system. All of the above will require investment and a strong business case.
Losing the trail
IFAs should also be aware that once RDR comes into effect, it will not be possible to generate new trail commission entitlements. IFA advisers will however be allowed to continue to receive existing trail commission post-2012. Even if an advisory business is sold, the new rules will not prevent entitlements to trail commission from being transferred to the new firm.
A golden opportunity
The FSA has described the RDR as ‘a golden opportunity to re-build the confidence and trust of consumers at a crucial time’. Whether or not IFAs view the new regulations in this way, they need to take the opportunity to get their house in order. Overcoming the technological barriers that so many IFAs are still facing will not only help them to prepare for December 2012, but also enable them to exploit efficiencies across the business.
Technology provides the ability to better respond to customer needs – to provide investment advice which reflects the consumer’s changing appetite for risk, and in doing so improve business performance. The aims of the RDR are worthwhile – it’s essentially about improving public trust through improving professionalism and clarity. Increased consumer confidence will lead to growth in the industry – which can only be a good thing.