FP Advance’s managing director, Brett Davidson said the review provided a ‘good news/bad news’ verdict. He explained: “As with all change initiated by the regulator there will be challenges created by interpretation and the time frames over which change is to occur. However many of these changes are long overdue. Businesses that have already transitioned to the new advice model have nothing to fear, and those that have started the process are also likely to meet any prescriptive change timetable. The only advisers with something to worry about are those with their heads in the sand.”
According to the FSA website, the latest update on the Retail Distribution Review states: “… there seems to be some preference for a move away from the focus on products towards the range of services that reflect consumer needs. The outcomes which could be achieved by this shift in focus are consistent with the five themes of the review and, for example, might include:
• Services that are clearly defined and can be explained to consumers.
• Remuneration structures that reflect both the services provided and the responsibility of those providing the services.
• Standards of professionalism that are proportionate to the service offered and enhance the reputation of the industry.
• Products that are more transparent and, where appropriate, simpler and more accessible, reflecting consumer needs.
• Regulation that provides incentives for firms to treat their customers fairly and is proportionate to the risks presented.
• Capital, liability management and other prudential requirements that result in sustainable businesses.”
According to FP Advance, the criteria which separate the ‘wheat’ from the ‘chaff’ in terms of quality adviser firms – which will ultimately dictate whether they fall into the ‘good news’ or ‘bad news’ categories, are:
1. The clients they work with are defined clearly in their client segmentation model
2. The services they provide and the way that they charge clients for these services is also clearly defined, but most importantly they do what they say they will do because they have built a business process that allows them to deliver the same quality over and over again
3. They are well qualified (holding far more than the minimum qualifications) and understand that the advice is the magic in their relationship with their clients; not product selection
4. When they select products to get the job done for clients they look for those that are already simple, transparent, and flexible in their design
5. Opaque commission loaded products don’t even get a look in. TCF is not an issue because the advice process addresses the FSA’s concerns in this area
6. Capital adequacy is not a problem because they have been making profits (over and above their drawings from the business) and can meet any likely minimum capital requirements from retained earnings or by securing borrowings against their sizeable personal asset base (without any stress or fuss)
7. Quality advisers are already operating in the ‘new’ environment and their business success, client relationships and bottom line profitability have all benefited as a result.
Davidson concluded: “Good businesses find out what their clients want and give it to them; profitably. The changes outlined above by the FSA will hopefully accelerate that process for the industry as a whole. If that creates a ‘Darwinian’ survival of the fittest environment then so be it.”
