Post RDR advice is in a better place: 2
As the FCA published its RDR interim reviews, Keith Richards, CEO of the Personal Finance Society (PFS) gave us his views on how financial advisers are getting to grips with the changes to adviser charging.
ABR: The number of firms still reliant on commission-style charging has been described as ‘frightening’. How are you seeing the market develop in respect of adviser charging?
Keith Richards: The ability to be able to facilitate an adviser charge through a product or a platform has definitely helped the transition from product-based commission across to fee structures and charging. Advisers would have been more challenged making an overnight transition to a fee structure paid directly from the client to the adviser.
It has provided the opportunity for advisers to grow more confident in having the conversation around fees with their clients. As a result, I think the reliance on having to facilitate the charge will diminish as time goes on. Certainly from our discussions with the FCA, the regulator seems reasonably comfortable with the current system in place and believes that over time most advisers will move into a different fee structure that is direct from the clients. So it is quite encouraging that the regulator is not looking to force further change.
However, I think the fact that this issue often gets aired with a question mark hanging over it, and the fact that the ‘sunset clause’ is only about on platform trail rather than off platform, means inevitably people are speculating on whether eventually the regulator will see the need to address off platform commission as well.
Yet, this is just focusing advisers’ minds on mitigating any potential risk by actually planning ahead and doing something about it. So whether it happens or not, advisers are taking more control by looking at their businesses and taking action.
ABR: How are firms responding to that change in revenue stream looming in April 2016 with the ‘sunset clause’?
Keith Richards: The significant benefit of the RDR is that it really has made advice firms step back and look at what they are doing in their businesses. It is making advisers want to be independent in terms of their revenue source.
Advisers are becoming a lot more confident in their ability to sell advice rather than product. And that’s quite a tough transition, because you’ve not only got an industry that’s worked in that way for many years but you’ve got a public that is used to dealing in a certain way with financial services. The public doesn’t expect to pay until a transaction occurs. It’s an education process.
So what we are seeing is a slow transition in terms of the public’s view, where they are now starting to recognise that the value is in the advice they get rather than the product.
What is absolutely clear to us as we go around the regions is that pre RDR with all the speculation and scaremongering creating an environment of uncertainty, no one really knew what the impact was going to be, no one really knew how consumers were going to respond. Post RDR, when the big explosion didn’t happen, advisers’ confidence started to build and that is continuing.
If you talk to anyone that converted pre RDR to a fee structure, what they say is that the more they started to talk fees with their clients the greater their confidence increased because the reaction wasn’t what they thought it would be. In other words, it was far more positive. And the more confident they’ve become in positioning their fee structure the less of an issue it has been with anyone.
The PFS is in the final stages of developing a programme of best practice guidance around fee charging as well as areas such as due diligence, suitability and disclosure. The first module on Adviser Charging will be launched in Q1, 2015.
Keep an eye on adviserbr.wpengine.com for more interviews with Keith Richards
Visit the Personal Finance Society website