Will things really be different post RDR?

phuket

I've just been trying to find out a bit more about what providers will be doing post RDR and have been reading about the changes Skandia will be making.

Their documentation says that post RDR investors have the choice of switching to "advisor charging" whereby the investor pays a set fee such as an advisor initial charge, adviser servicing fee and adviser switch fee which can be agreed with the adviser. The adviser then gets these fees taken out of the client's account.

I understand that the main purpose of the RDR is to introduce more visibility and clarity into the charging structure but aside from this will it actually be better for the client?

Surely whether it's termed commission or fees advisers will still be paid by providers of financial products and will still be incentivised to sell products which pay them the most?

Any thoughts? Perhaps I have misundestood the situation?

Thanks

Aegis

phuket wrote: »

I've just been trying to find out a bit more about what providers will be doing post RDR and have been reading about the changes Skandia will be making.

Their documentation says that post RDR investors have the choice of switching to "advisor charging" whereby the investor pays a set fee such as an advisor initial charge, adviser servicing fee and adviser switch fee which can be agreed with the adviser. The adviser then gets these fees taken out of the client's account.

I understand that the main purpose of the RDR is to introduce more visibility and clarity into the charging structure but aside from this will it actually be better for the client?

Overall, the average client won't see much difference in my view. It will be harder for the fairly uncommon rip-off merchants to hide charges in weird products, but ultimately it's still going to be possible for advisers to provide quotes to the client where a fee is taken out of their investment and passed to the adviser to cover their fees, whether as a one-off fee or a recurring arrangement.

Probably the most beneficial feature of RDR is that trail commission (or recurring fees under the new jargon) will be able to be turned off at the request of the client if they're not getting anything for their money.

The education requirement is a good one, as Diploma really isn't all that advanced in terms of knowledge, though it would have been nicer to see more material in the syllabus relevant to day to day advising.

Overall I think it's a step in the right direction, but I think the FSA have made some major blunders with RDR, including backing down on effectively re-polarising the industry, which would have left independent advisers and product salesmen as the official roles. Instead we're now going to have tied advisers, multi-tied advisers, restricted advisers and independent advisers, so the complexity has actually increased in this area. On top of this, there's also going to be "simplified advice", which is a) totally lacking any clarity as to what will constitute simplified advice and when it is appropriate and b) almost certainly open to vast quantities of abuse by the banks.

Surely whether it's termed commission or fees advisers will still be paid by providers of financial products and will still be incentivised to sell products which pay them the most?

This is where the most benefit will be seen. Post RDR product providers will not dictate the level of commission available on their policies any more, therefore the adviser will specify the level of charging applied to the client in all cases. This should make it a lot easier to see what the adviser is trying to charge (and should hopefully put an end to investment bonds paying a huge initial commission and funding it with a lifetime "establishment charge" on the investments held therein). It wouldn't surprise me if certain "upmarket" sales organisations worked out a way around this though.

I think the RDR is likely to fail most of its stated aims because the FSA targeted the wrong areas and backed off far too easily when the big players started kicking up a fuss.

Considering how much financial services money has been spent on this project, I think the results are somewhat poor.

DiggerUK

phuket,
It seems that the product providers will be able to cut out the middle men, thereby avoiding trail commissions.

Most of the sexed up sales reps, aka financial advisers, will find it difficult to sell to a public, that has cottoned on to the fact that most of the products they have been persuaded to buy, are a bit short of lead in the pencil department......who wants to buy blanks?

With the broadening out of the difference's that presently exist, between independent and tied advisers, the public will more than likely be driven in to the arms of some sort of 'mail order' self select type services direct with providers. Failing that the banks are going to smile and say that they will provide financial services/advice, for 'free'.

One thing looks likely, the usual suspects are going on a diet .
..._

dunstonh

I understand that the main purpose of the RDR is to introduce more visibility and clarity into the charging structure but aside from this will it actually be better for the client?

I dont see much change to be honest. At the moment, the providers dictate how much the adviser earns. Post RDR, the adviser decides how much the adviser earns.

What will likely happen (And is expected in most prediction models) is that low wealth consumers will be worse off as there will be less cross subsidy in the system. Currently the larger investors cross subsidise the smaller ones. That will not happen post RDR or to a much lower extent). Larger investors will be better off.

Surely whether it's termed commission or fees advisers will still be paid by providers of financial products and will still be incentivised to sell products which pay them the most?

No. The same charge will exist irrespective of provider, wrapper or whatever. The point of the adviser setting the charge is that it removes the provider being able to influence the decision.

Firms that have already moved to a more compliant RDR model are typically reporting increased business. Firms that are old model seem to be suffering. This was already happening before the RDR came along. The RDR has just forced the hand of the stragglers to move along.

I suspect that old model firms will struggle and some will fail or pull out (we are already seeing that). new model firms have already adopted the business model will see new names for things but are already there.

vectistim

dunstonh wrote: »

What will likely happen (And is expected in most prediction models) is that low wealth consumers will be worse off as there will be less cross subsidy in the system. Currently the larger investors cross subsidise the smaller ones. That will not happen post RDR or to a much lower extent). Larger investors will be better off.

I'm inclined to agree with this - if we look back further to the industrial branch world, we had the visiting insurance salesman collecting five bob a week, whilst these policies were very labour intensive and better returns could be achieved, they could provide a useful start at the low end of the spectrum. When companies like the Pru and the Co-op had sales forces of several thousand it did help get insurance out into the low end of the market. However, the higher standards and training and costs now have moved the bottom end up further and the next step will move the bottom end up further still, such that a full advice service is likely to become something of a luxury commodity.

I suspect the low end of the market will be left with non-advised sales via daytime television adverts, competing for airspace with the loan-sharks and ambulance chasers.

Ash1982

How do people think the changes will affect fund supermarkets such as HL?

dunstonh

Ash1982 wrote: »

How do people think the changes will affect fund supermarkets such as HL?

IFA trail commission wont exist. So, the likes of HL wont be take a cut of that as they do. So, expect charges to go up.

The platform review actually has the bigger impact in my opinion. The current cross subsidy of managed funds to allow trackers to be cheaper will go and managed funds will come down in cost and trackers will go up in cost unless you buy direct from provider. Platforms are now moving to explicit charging (or have already done so) and for that you are seeing smaller investors pay more than they did before whilst medium investors are typically cost neutral but larger investors cheaper.

Ash1982

Can they charge trail commission on existing investments though? I thought the new rule only capture new investments from January 2013.

So HL will have to change monthly, quarterly or annual fees to make money then. It'll be interesting what they announce and when.