It is fair to say that messages from firms as to their ‘RDR readiness’ are mixed, and there are those that have confidently stated for a long time that they are already fully RDR compliant. Sentiment does vary though, and it is worth taking a few minutes to highlight some of the key things that RDR project sponsors should be thinking about over their summer holidays.
One size does not fit all
Let’s be clear: there is no ‘off-the-shelf’ answer or solution that will work for your business. Nobody knows your business better than you and the very nature of the RDR means that you need to have thought carefully about how best to apply the new regime to your firm and your clients. Firms need to be comfortable that the approach they will adopt from 2013 will continue to work commercially with their particular customer base. Whilst a restricted advice service, for example, paid for on a fixed fee basis may work very well for some firms, it certainly will not work for all. Now is a good time to revisit documented business strategies to ensure that the rationale for how you will serve your clients remains clear.
Independent vs Restricted
How important is the ‘Independent’ label to your firm? Our discussions show that responses to this question vary greatly. In terms of the RDR debate though, it rather boils down to the following: independent advisers will have to go further to demonstrate how they have considered a sufficiently wide market in arriving at their recommendation. Whilst your client base may fully justify the need to provide independent advice, a restricted advice model should provide less of a compliance headache on an ongoing basis. This is such a fundamental driver of the post-RDR world that it makes sense to spend five minutes standing back from the detail now to validate the decision you have made.
Adviser charging, cash flow and VAT
Decisions regarding the commercial impact of the RDR need to be made based upon accurate financial management information. It is clear that some firms, both large and small, are more comfortable than others in the integrity of the information on which they are basing their decisions. It seems an obvious thing to say, but validating your menu of advice charges by considering projected business volumes and costs over the coming three years is essential.
Further, have you modelled the impact of the change to the new adviser charging rules on your cash flow? Careful consideration of your ability (or not) to retain trail commission post-RDR, together with analysis of the effect of any arrangements with providers who may facilitate the payment of advice charges needs to be undertaken to give you the full picture of what the next three years trading will look like.
Finally in respect of financial impact, are you clear on your VAT position? The VAT rules are not changing, but it is clear that firms need to be careful when articulating the extent of the service that they will provide to their clients in order to clearly evidence whether the service is exempt from VAT or not. Now is the time to review terms of business and engagement letters to ensure that you have the evidence that you need should HMRC ask the question.
Mind the gap-fill
A significant point of discussion throughout the RDR has been centred on increased professional qualifications for all advisers. As the final few months of 2012 pass by, firms need to ensure that all their advisers are on track to have passed required additional qualifications, have identified and undertaken any required gap-fill activity and have identified an Accredited Body to issue a Statement of Professional Standing in time for the end of 2012. Firms’ HR, training and competence functions should be fully engaged in this aspect of firms’ RDR preparations to ensure that that all of this work is completed in good time for the deadlines set by the various Accredited Bodies. In some instances, this is likely to require submission of gap fill evidence to Accredited Bodies by October 2012.
Heard it on the grapevine?
The industry has had five years to get to grips with the changes to be brought about by the RDR. In contrast, how long will your clients have to digest and understand the changes? How well the RDR works for your firm will be influenced significantly by how you manage the message to your clients. Whilst media interest and commentary has thus far been quite limited to the trade press, the next few months will see far more interest from the broader media. You need to make sure that your clients receive clear and positive messages as to how the changes that you are making will benefit them, and you need to make sure that they hear this from you first: not after the appearance of any generic headline-grabbing commentary in the tabloids.
My closing message is that you should not underestimate the importance of this communication with your clients. If you have not already done so, spend the time required over the next few weeks to devise and deliver a clear communication strategy that demonstrates the value that your services provide. You have only a limited opportunity to deliver this message to your most important stakeholders.