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Countdown

Well here we are, already one month into 2010 and with just under 35 months to go before the RDR deadline of December 2012! It may be that there are many out there thinking this is still a long way off and with the World Cup and the Olympic Games being ahead of the RDR deadline, some may be lulled into believing that they can put off dealing with how they should respond until a later date. However, what we shouldn’t ignore is that the FSA is not showing any sign of moving the date or ‘softening’ the requirements, and the implications of change are potentially huge. To be fair, the FSA has still got to provide the detail in a number of areas and they have been criticised by advisers and providers for not having done so more quickly. They probably deserve this criticism and whilst all parties have a tendency to be defensive, the FSA has been rightly critical of some in the industry for delaying the start of the transition process.

As we have said on a number of previous occasions, the RDR isn’t going to go away – even if there is a change of Government. And, even with 35 months to go, the size of the task should not be underestimated. From a number of our regular conversations with managers in Distributors, Providers and Technology suppliers, it is clear that some people either haven’t read, or haven’t understood the requirements and implications. Some people still think that ‘Restricted Advisers’ will be able to get some form of commission based remuneration – reasoning that with a single tie, there is no product bias influenced by commission, so it must surely be ok. Whilst it is still not entirely clear how the articulation of the charge for advice will be calculated, the FSA is still insisting that the charge will be separate from the product price, that it will not be a ‘generic’ percentage and that it will need to be explicitly identified as a monetary amount. The challenge and potential complexity will be how to account for basic salaries, bonuses (which can’t just be for selling a product), and other remuneration elements. Will large distributors (Networks and Bancassurers) be able to negotiate such significant product pricing discounts as to make it difficult for smaller firms to compete. The issue that distributors need to consider is how they will respond when the FSA provides the detail, or to consider what their preferred approach will be beforehand and then communicate that directly to the FSA or lobby their trade body now.

Given that providers cannot offer ‘factoring facilities’ will the Networks try to do so, or will we see lending facilities being made available to customers to pay the fees in the same way as we have seen the GI market use these arrangements to fund the monthly cost of premiums.

With so much attention being focused on the distributors, it is easy to forget the Providers – manufacturers – of the products. Is the ‘factory-gate’ price as simple as ‘zeroing’ the commission? Some seem to think it is… However, Providers will need to look at what options they allow for offsetting the Adviser Charge against the product. Do they offer a wide or narrow range of options – the latter could be construed as Provider influence? How are illustrations going to show the effect of the options on benefits over time? What will they do, or be expected to do when a client cancels a plan or changes adviser? How will providers identify, monitor and report against the ‘decency’ test of Adviser Charging (especially when they don’t have all the facts in relation to what has been agreed between the customer and adviser)? Will the current number of Providers be able to compete in a more transparent world of ‘factory-gate’ pricing or will we see significant consolidation? Will they focus on niche products or will they be more generalist and use their brand to support either a single or multi-tied model to distribute their products? Will it just be a case of selling existing products with minor tweaks, or will a major redesign be needed? Will different products be used via different distribution channels… less ‘bells and whistles’ for Simplified Advice routes to market? Will anyone seize on the opportunity to manufacture more Stakeholder products?

What software will be needed to support truly holistic advice, what will be the role of Platforms – something still awaiting an FSA response (commented on by Dan Waters this week). What systems will be needed to try to cater for Simplified Advice and what opportunity is there for technology to support Basic advice business distribution?

There are lots of questions and the answers are not always known or obvious. AT8 is helping a number of providers, distributors and technology companies navigate through these issues. We believe that all parties should be considering them now and not just looking at the ones they think affect them most… the decisions of others may affect the conclusions that different parties reach at a given point in time, so there is some iterative ‘what if’ thinking to take place if it hasn’t already started.

Last Thursday I had the pleasure of attending the Professional Adviser awards at the Park Lane Hilton. The event was well attended, especially considering the difficult times we are living through.

As always the food was fantastic, the entertainment (a lady with a Monkey!) was good and the networking opportunities invaluable. The focus of the night however were of course the awards themselves. These were many and varied but I thought it worth mentioning a few that stood out from a technology perspective.

The first award worth mentioning was the award for Best Software Provider. Shortlisted for this award were 1st The Exchange, IntelliFlo, Prestwood and CCL. While I have written much about Prestwood and their software Truth in the past this was always going to be a battle between the two giants of the IFA Software market, IntelliFlo and 1st The Exchange. The battle has been going on for some years and feels a bit like the best soap opera awards at National Television Awards where the winners oscillate between Eastenders and Corrie. This year the honours at the Professional Adviser awards went to IntelliFlo, with 1st The Exchange getting an honourable mention.

IntelliFlo has made big strides in the last couple of years and grown their user base considerably. As one of the first IFA software solutions to embrace the world of SaaS (Software as a Solution) and still the leading SaaS world, their award is well deserved.

The award for best Online Tool was another battle involving IntelliFlo and 1st Software. This time however they were both pipped to the post by MorningStar. I have always found the Morningstar team professional and helpful and their application is gaining some major traction in the market at the moment. Other online tools consider were the TCF Centre from FinQS, a nice customer surveying tool, Trustnet and tools from Scottish Widows, AEGON and Skandia.

The award for best data provider saw 1st The Exchange go up against Assureweb, Morningstar, Trustnet and Lipper. This time 1st The Exchange came out winners with Assureweb getting an honourable mention. AT8 are just completing our annual survey of the portal market and while we continue to be impressed with the progress Assureweb are making, it is clear that Exweb from 1st The Exchange still leads this market providing the widest coverage of products and dominating in terms of market share.

AT8 have Infoblogs (factsheets) on Assureweb, Exweb, IntelliFlo, 1st The Exchange are available in or library section.

• FSA has restated that the 2012 deadline for the full implementation of RDR remains
• Some had hoped that more time would be given, especially to achieve the QCF level 4 qualification standard
• Some felt that the potential change of Govt would see RDR dropped or delayed – this is considered highly unlikely

• The proposal for an ‘Independent’ Professional Standards Board’ separate from the FSA has been changed to one that is to be a ‘subsidiary’ of the FSA
• CII and others argue that this limitation of ‘independence’ will reduce the intended increase in public confidence

• Alternative study routes to achieve QCF 4 are now being considered
• In CP09/18, there was talk of an ‘Oral’ route
• May consider ‘coursework’ or ‘practical assessment’, but it is subject to meeting a number of listed criteria, it
must satisfy the qualifications regulator and is still unclear and likely to remain so until the end of Q1 2010

• An ‘independent’ assessment of Competence may be required for advisers who are not a member of a Recognised Professional Body (RPB)
• Will we see a growth in Recognised Professional Bodies (RPBs)?
• RPBs will need to satisfy themselves that its members are competent
• Need to be careful of advisers trying to exploit any standards arbitrage between RPBs

• The FSA has published a list of ‘no regrets’ qualifications
• Still not agreed the ‘benchmark’ qualification but expect this mid 2010
• ‘Gap filling’ between the current qualification and the ‘benchmark’ qualification will be required to be completed before 2012

• FSA acknowledges that ‘consumer awareness’ is likely to see an increase in customer complaints
• Improved financial awareness should reduce ‘ignorant satisfaction’ with inappropriate advice
• TCF and regular customer review assessments should be carried out to identify and address individual or systemic issues early

• Protection business is confirmed as being allowed to operate with commission based remuneration
• ‘Pure protection’ with no investment element
• Need to be careful that ‘specialism’ doesn’t disadvantage advice in other need areas
• Although still seeking feedback, the FSA seems inclined to require the same Professional standards to be applied to Protection Advisers (QCF Level 4)
• The FSA also feels that ‘Adviser labelling’ (‘Independent’ and ‘Restricted’, should also apply to Protection)
• Protection commission needs to be disclosed

• GPP advice will be subject to ‘Consultancy Charging’ previously referred to as ‘Arranger Charging’
• The ‘Consultancy Charge’ is intended to be agreed with the employer for setting up and managing the scheme and it may be paid for by the employer or deducted from the employees GPP funds in a manner and amount agreed by the employer that is disclosed to the employee – ‘Adviser Charging’ may also apply where personal investment advice is given to individual employees
• HMRC will regard ‘reasonable’ (market cost) Consultancy Charging as ‘Scheme Administration members payment’ and not unauthorised deduction incurring tax charges
• A consequence/concern could be for employers to offset the ‘Consultancy Charge’ against the funding level and so reduce the amount going towards pension benefits
• FSA has said that it will not allow factoring by Product Providers in respect of GPPs
• There was a concern that Providers and Advisers could exploit a loophole by selecting ‘Occupational Pensions’ (not covered by FSA regulation) instead of GPPs in order to obtain commission via what is a similar benefit vehicle (differences in benefit and tax treatment were more pronounced prior to Pensions act). The FSA has said that it will seek to ban commission payment on the underlying investments to avoid this being a risk
• GPP product providers estimated between £1m and £10m of costs associated with changing their products to comply with the proposed regime
• FSA has said that it wants to stop commission for ‘Basic Advice’ linked to Stakeholder GPPs