RDR Action Week Q&As

Follow-up answers to members’ questions asked during RDR Action Week (26-30 October)

Q. Dudley Hall - If I take two J papers and one AF paper to obtain the Diploma, is the AF paper the first step on the ladder to Chartered?
A. Yes - It is possible to study simultaneously for both Diploma and Chartered status. However, credits can only be counted once, but are cumulative.

Q. Julie Pardy - For training managers who will be responsible for tracking their workforces progress towards Diploma level, what sort of tools will be available to help manage this in an automated way rather than via a manual process?
A. CII is looking to build a tool to enable employers and employees to both assess where they are on their route to RDR compliance and help them identify and address any shortfalls.

Q. Karen Rogers - What format is the CPD going to take?
A. FSA will shortly consult on 'gap filling' CPD but we are expecting it to be 'structured', e.g. courses, workshops etc.

Q. Karl Labert - I have CF1 to 6, so if I take an extra 3 diploma J subjects by 2012 will this be adequate?
A. If you are registered with FSA prior to a date (yet to be advised) probably Q2/3 2010 year you will be treated as an existing trainee and can complete the Diploma by 2012. You should check your learning statement as you may need 4 J subjects.

Q. Leslie Clements - Re post 2012 new entrants, will they be able to give advice under supervision while they are studying for QCA 4? If so, how long will they have to achieve QCA4?
A. Our understanding is that new trainees registering after a date (yet to be advised) but in 2010, will have to take the new qualification but can advise under supervision once they have passed the 'financial services, regulation & ethics' part of the new qualification.

Q. Tony Clarkin - You said that G60 is probably the equivalent of two or three current exams. Is that reflected in the credits system?
A. Yes, AFPC exams earn 30 credits at Advanced Diploma level but they can be used towards Diploma

NB. The following answers have been kindly provided by FP Advance but do not necessarily represent the views of the Personal Finance Society.

Q. Debbie Jones – What is key in front of a customer in an advisor charging environment?
A. In our view two things. Firstly clarity. Clarity around who you work with and what you do for them in terms of the value you add. Only when you can articulate your value to clients in a clear and compelling way, will you be able to help clients see that your charges represent great value relative to the value you will add. In our experience many advisers struggle to do this. Case studies are a great way to demonstrate to clients that you can help "people like them" and that they have come to the right place for help. Secondly , confidence. Be confident about the difference you can  make to people's financial situation, whether that be creating, growing or protecting their wealth. Recognise that what what you bring to the relationship is your expertise and experience. Your "product" is the advice you give. That advice has tremendous value and is what clients are really looking (and paying) for.

Q. Jason Carr - What has been the most difficult step in your journey to a fee charging business model?
A. Our coal-face experience tells us that the adviser's own mindset is often the biggest challenge they face. Recognising (and having confidence in) the value they add, trying to be all things to all people instead of being absolutely clear about who they really want to work with, being unwilling to disengage (sensitively and compliantly) with clients who no longer fit with the aspirations they have for their business are all common problems. Many advisers believe that finding more clients is the answer to all their problems. In reality, it's about finding more of the right clients. Mark Tibergien, a well known and highly respected practice management guru in the US has a great take on the key issues.

1. Stop being precious about your book of business and start to build a real business (that doesn't rely on selling new products to new clients to stay afloat)
2. Stop thinking revenue, start thinking profit (the key metric in the US for business valuations is "profit per client")
3. Stop seeing staff and IT as costs and start seeing them as investment in the growth of your business
4. Stop thinking individual, start thinking team
5. Stop thinking more clients, start thinking right clients

Q. Mark Davis - Do you feel it’s a sensible strategy to target a specific size of client base i.e. 150 - 200 clients, with minimum annual charge/fee per client?
A. Yes! You have a finite amount of time. Our own research suggests that the average adviser manages 3.4 client meetings per week! Assuming you want to take at least 4 weeks off plus statutory holidays (let’s call it 6 weeks) that leaves you 46 weeks available to work assuming you never get ill. At 3.4 meetings per week that suggests that the maximum number of client relationships the "average" adviser can effectively manage is 156. In terms of minimum level of fees you absolutely should have one. It has to be set at a level you are comfortable with but nevertheless you should have one. When most advice business started out, catch and kill was the name of the game. Some days maybe you weren't to fussy about what you caught, it was all about survival and that is why most advice businesses have far too many unsuitable/unprofitable clients. Advisers who set a minimum level of ongoing fees from their clients make more money. Unsurprisingly, the higher the minimum, the more money they make.

Q. Peter Thorne - How does advisor charging impact on a firms relationship with other professional introducers?
A. Positively! Other professional typically charge fees. Being able to demonstrate that you can guarantee clients totally impartial advice, because you are fee charging (and cannot therefore be influenced by higher commissions) is a great place to be starting from with other professionals. Sure they will want to see evidence of your professionalism, expertise and qualifications, but fee charging puts you on the same level as them and is likely to differentiate you from other advisers they may have worked with in the past (for now at least).

Q. Phil Caton - What is the view regarding some providers paying fees out of client premiums?
A. I may have misunderstood the question Phil, but is that not what "adviser charging" is all about. As long as the level of fee has been agreed with the client in advance, this would appear to be exactly what the FSA are looking for. If I have misconstrued your question, please give me a call or drop me an e mail and I will happily try to provide an appropriate opinion.

Q. Simon Jones - Do you feel that the FSA should regulate the size of the adviser charge?
A. No. However, I am sure that they will have a view on "obsenity" levels. I know providers are already pretty clear on the level of adviser charge they might be willing to support, particularly for ongoing revenues. Furthermore I suspect that regulations of this type will look rather like the old Maximum Commissions Agreement and would therefore be likely to fall foul of competition legislation, from the OFT (Office of Fair Trading).

Q. Tim Burridge - Can Bret define a good example of a charging structure a firm which is investment/pension based and what levels of service are offered for this?
A. Typically, what we commonly see is a pricing structure that charges for

1. The initial advice/plan
2. Implementation
3. Ongoing advice and review

There is significant variation on what is charged at each point depending upon the costs of delivery, the complexity and scope of the advice, the risk to the advisory firm and the value added to the client, so it is hard to be specific. The key thing is to aim for a model that reflects the value added at each stage. For most clients the real value comes at stages 1 (the advice that tells me how I can achieve my financial goals) and 3 (making sure everything is on track and making adjustments as my circumstance or legislation change) with less value (though still some) at stage 2 (filling the forms in!). The level of service offered again varies. The key question is to understand what service your ideal clients value (and are  willing to pay for) before developing your service standard. I am sure you have a pretty good idea of what you think your clients want/value/need but there is really no substitute for asking them directly.

The following answers have been provided by Simon Collins, Managing Director of Resources Compliance, and do not necessarily reflect the views of the Personal Finance Society.


Q. How do you see Wrap Platforms & Distributor Influenced Funds (OEICS) fitting into both restricted & independent channels?
A. This will develop over time and in the run up to 2012. One of the main points for consideration for both restricted and independent advisor firms will be the clarity of their disclosure documentation and the need to make clear their status in the market place and if restricted, to what extent. Another key point will be for intermediaries to justify the recommendation for a WRAP or Distributor Influenced Fund (DIF) to each particular client’s needs and not to have a situation where all clients end up with the same product, irrespective of their needs and objectives. The need to factor in overall costs will also be key when agreeing with the client the “adviser charge” linked to such advice and how this will be paid for.

There currently seems little doubt that both the WRAPs and DIF market will continue to grow and advisory firms will become increasingly mindful of service levels and clarity of charges when choosing a WRAP or putting together a DIF, which in turn should drive up standards for clients.  

Q. Does the panel think basic advice can be made to work if there are more stakeholder products?
A. The short answer is yes. Obviously costs and charges and the volumes of products sold will be a major factor as to whether a business model built around the sale of these products is sustainable but there are large numbers of people who need such advice and the products associated with it. The recession has also encouraged more of a savings culture, which I suspect will lead to higher levels of product sales. Clearly, the advice process needs to ensure products are sold to genuine needs if persistency rates are to be maintained. There is also  a compelling case for looking at product regulation whereby a product carries some form of kite marking, this would be for straightforward saving type products consumers could top up at major distribution sites ie supermarkets, petrol stations etc as long as there is sufficient confidence in the product credibility which comes down to the kite marking approach.

Q. Do you think this will be the catalyst for us starting to talk of being in a profession rather than an industry?
A. Almost certainly, yes. Increased public awareness combined with advisers operating with higher levels of qualification, credibility and competency, which in turn should drive up the quality of advice should all help improve the reputation of the industry.

Q. Where do the panel see the advice landscape being in 5 years?
A. I suspect the growth seen in recent years of WRAPs, Platforms and the use of SIPPs in pension planning will continue as will the consolidation of both product providers and particularly intermediary firms. Technology and social media will also continue to have a huge impact and all parties will have to be at the top of the game as clients become more demanding as their awareness of the market place increases.  The use of major retail distribution channels is also likely to develop further. There will also be a demand for highly professional tax and financial planning  and investment management for the very high net worth client. There is currently significant competition in the overall high net worth market but the professional standards development will determine which firms are prepared to go the extra mile to support the client demands.