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RDR Impacts on Businesses in the UK

Nick Cann CFP United KingdomBy Nick Cann, CFP

The UK is now in the throes of regulatory change and the financial services world is adjusting to a world with no commission and a higher minimum level of professional qualifications. Since 1st January 2013, investment advisers have had to charge for the advice that they provide and the UK consumer is getting used to this new regime.

For most financial planning businesses, this has meant little change to the way they serve their clients. CERTIFIED FINANCIAL PLANNER professionals are already qualified at a level 6 which is higher than the new minimum which is level 4, an equivalent to the first year of a University degree level. Financial planning businesses have, in the main, been charging fees for many years and therefore much of the last year has been around fine-tuning ahead of the changes being introduced by the Financial Services Authority (FSA).

The impact for the wider market is not so straightforward or easy to evaluate at this time. Many businesses have struggled to meet the new qualification requirements and their business model has been very much based on advising on various product solutions. Their remuneration has been predominantly commission-based and there has been little evidence of financial planning having been provided. There are therefore many challenges for these businesses to transition to a model where they can confidently ask clients for fees that the client is happy to pay.

Businesses have also built up significant amounts of trail commission over the years and whilst there is some evidence of an ongoing service many clients receive nothing for the money that is being received by the firms. If they now need to take further advice and why wouldn’t they, the commercial relationship needs to change as well. This means that there are further challenges to adviser firms to ensure that they are offering ongoing value and service that the clients are prepared to pay for. Once again this highlights the importance of doing full financial planning at the outset.

Switching the Value from the Product to the Service

The challenge for most advisers is they need to switch the value and conversation away from the product to the client and the service. Over the last few years the focus has been on advisers gaining knowledge-based qualifications and little attention has been given to skills and developing financial planning services. The market has developed great technicians but communication has been lacking. It has been acknowledged that there is a need for a cultural change within many businesses and a need to think on what clients are going to be happy to pay for at a time when consumer behaviours and preferences are changing as well.

There will be little immediate evidence of the impact of the RDR but some of the immediate issues will have come to the fore by the second half of 2013 and the hope is that during the first half, firms can fast track some of their teams of people nearer to where they need to be to ensure ongoing success and profitability.

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