RDR: specialising is key

As we approach the one-year anniversary of the Retail Distribution Review (RDR), implemented to improve the provision of financial services, it’s never been a better time to be a professional provider of financial planning services.

However, I have had some intriguing conversations with other financial planning practices who believe that their awards entries this year were their worst. We agreed unanimously that this was because we had embraced the principles behind ?the RDR years ago and differentiation was more ?difficult than ever.

Five years ago, firms who charged clients transparent fees (as opposed to sales-based commissions), attained a high level of qualification, for example chartered financial planners, and learnt to explain the value they provided to their client were the exception. In 2013, we found it more difficult to significantly improve in the context ?of RDR.

We have been involved in a significant amount ?of developmental work, but much of this has related ?to the day-to-day implementation of the Financial Conduct Authority’s vision of RDR rather than a significant shift in the way we do business. Challenging for nimble, smaller professional firms, RDR proved to be devastating for some and we intend to capitalise on this further.

Banks provide a huge untapped market, as do traditional discretionary fund managers and stockbrokers. RDR has not been kind, requiring them to give far more detail to their clients about how they earn their money, and the current low-growth environment means that it is harder ?to justify high annual charges.

We have won clients with historic fees and commissions of over 3 per cent per annum. This ?has a huge impact when investment returns for everybody are so insipid. We offer more service, for ?a lower cost. Many of these individuals had no financial planning or tax structuring advice from their legacy advisers.

Three-quarters of new clients come from existing client’s referrals. Overwhelmingly this year, they have come from three types of clients:

• those whom their existing adviser has chosen to give up because of RDR pressures

• those who have been served by large institutions, particularly private banks, who are unable to offer the same, or if any, services; and

• those for whom their existing adviser has tried to renegotiate existing commissions, in the form of the fee, but been unable to explain specifically what they are doing for the money they are charging.

The main threats are a lower need for advice in the market as investments and strategies simplify for those with lower incomes or lower levels of wealth.

However, for those who are paying higher or additional rate tax, have pension assets approaching the lifetime allowance of £1.25m, or have estates that are likely to fall significantly into inheritance tax thresholds, the need for advice has arguably never been greater.

As more of the baby boomer generation ?reaches retirement, and a significant number are ?now claiming their state pension, the advice we are required to give is intergenerational. It frequently means holistic financial planning for our clients, ?their children, their parents and sometimes even grandchildren or younger generations.

By being selective, and dealing with a smaller number of clients than we ever have done, we believe that our ‘multi-family office’ approach to financial planning, investment, tax and estate planning advice and working with other professional advisers is the future model for professional financial advisory firms. This space is becoming increasingly rarefied and provides an exciting opportunity.

Specialising is key. Firms that seek to offer a range of services to the broadest possible cross section of clients will probably continue to find the current climate tough, but those who can carve out ?a niche should continue to thrive.

 

Alistair Cunningham is financial planning director at Wingate Financial Planning

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