The implementation of the RDR, in consultation until 30 October, will impact on protection, both through the providers and directly on IFAs. Stephen Gay, director of distribution development at Aviva Life, Robert Kerr, head of distribution development at Scottish Widows and Danny Wynn, RDR and commercial director at Legal & General, outline their views to Mark Colegate of Asset TV.
Can product providers get their systems up and running on time to cope with adviser charging in 2012?
Stephen Gay: In a word, yes. I am conscious there was a lot of noise in the trade press during the Spring asking whether providers could do it. The reality is that there is a lot of change, but it is possible within the timescale and we will make it happen.
How much resource are you throwing at it?
Stephen Gay: Well, all of the products that we want to market in 2013 are going to have to be compliant. That means sort of a root and branch look at all the propositions and all of the product systems and agency commission systems that support them, so lots of resources have to go into that.
It is all very well for big product providers to throw money and resources at RDR but can intermediaries make the 2012 deadline to get their systems up to scratch?
Robert Kerr: There will be significant challenges for the IFA market as costs and income come under pressure. So driving out e-commerce benefits across the value chain is going to be more critical going forward, and that potentially means for some IFAs changing operating models. I think we have always seemed to be on the edge of e-commerce adoption, potentially we will begin to get some real drivers for it now.
Danny, if factoring goes for regular premium business, are there any ways round it? Is it not going to create a funding gap?
Danny Wynn: Well yes, the FSA have alluded to the opportunity of creating credit terms for customers, who could effectively borrow the money to pay the adviser an initial fee and then repay that through the product. There are a number of issues there. The FSA alluded that it could be seen as an inducement - if not available to all customers from all distributors. But there are other issues too: if you get into that kind of credit agreement, what happens if the client decides to stop paying into their policy or they surrender before that credit agreement has completed?
Are you happy with the distinction being drawn between independent and restricted advice?
Danny Wynn: The new definition for independence is reasonably clear, and the label ‘independent' will have a meaning. The bigger issue is that the label ‘restricted' does not really have a meaning, all it means is anything that is not independent, which covers a massively broad church.
What is important is the idea of a one line descriptor that follows the disclosure; that I offer ‘restricted' advice or I offer ‘independent' advice, that sets out for the client the service they can expect to receive. At the moment the FSA are trying to pursue a line that says "we are not going to prescribe wording". It would be nice if that works. I live in hope, but I am a bit sceptical.
Is that a licence for disaster, effectively saying: "It is vitally important how you define yourselves but we leave it up to you how you do it."?
Robert Kerr: I do not think it is a recipe for disaster. It allows people to think clearly about what their business model is and what they are trying to advise the consumer on. I think the label ‘restricted advice' is unnecessarily pejorative and one of our main aims is to try and engage with consumers. I would not think that saying I am a restricted adviser really helps in achieving that. I worry more from the definition of independence, I think it is very challenging and, with a reputation of hindsight regulation, I do have fears over how advisers can really be confident going forward in that space.
What percentage of today's intermediary market do you think will end up going into the ‘independent' advice camp and what percentage will end up going with the restricted advice label?
Stephen Gay: The first aspect of that is how many advisers will still be in the market after 2012, and there are lots of different estimates about that. Research we have done recently says 25.5% of advisers said that they will be leaving the industry.
Some of those who are going to remain will say, "I give a really good service to my customers, I do not think I need the extra hurdles required to be independent. So I will continue to operate as I am, as an almost IFA but operating under a restricted banner and my customers will be perfectly happy with that."
Others will move to the new hurdle. Some of them perhaps will say, "A lot of it depends on the FSA's bandwidth to regulate this and I will continue as I am until such time as I am told to stop."
Independent and restricted advice are not the only types floating around. There is also the simple advice process and basic advice. Can you sum up the difference between these two?
Robert Kerr: Yes, well I can sum up that I am confused. Basic advice, coming back into the equation, was I have to say a bit of a surprise. It seemed to me like a last minute rewrite as the Government begins to look at how it can relaunch the stakeholder regime. So I think we will have to wait to see how that one develops.
Are life offices quite excited about the re-emergence of basic advice and by simple advice - surely it gives them a reason to do a lot more direct selling?
Danny Wynn: I am not convinced it is the re-emergence of basic or simplified advice that is making providers sit up and pay attention. If the advice community move to an ongoing relationship with a customer, in return for ongoing fees, then they will identify parts of their client bank that they cannot engage profitably. For their own TCF concerns they are going to have to decide what they are going to do with them.
What we have said is we have no definite plans, but we will look to see if we can pull together some form of a proposition for customers that become unserviced that we think is profitable for us and is worthwhile to the customer. But we are not going to get into a turf war with today's IFAs for clients. They will decide which clients they want to keep hold of.
It is clear from the consultation paper that the FSA wants to get rid of a product provider's ability to influence advisers. How can you support an adviser without influencing them, and why would you want to?
Danny Wynn: The first thing to make clear is that the FSA has no problem with a provider of any description taking an equity stake in a business. So capital can be injected for an equity stake as long as it is managed at arm's length from the provider activities, and there is no influence going on there. So that will not be impacted.
When it comes to other inducements there are two rules here: one is if we make it available to one, we have to make it available to all and, two, the distributors themselves cannot come to rely on something they receive, a good or service, that if taken away could cause serious detriment to their business.
So the obvious example is tools. A lot of providers are offering them. There is an argument that if an IFA becomes over-reliant on one set of tools for managing their business then that could be seen as an inducement because that provider will have some influence through the threat of taking away that tool.
In terms of how else we can help, we are still allowed to get involved in terms of training and communicating, as long as we can show and clearly demonstrate that the work we are doing with an IFA is actually to help the end customer.
Should customer agreed remuneration apply to pure protection contracts as well as investments?
Danny Wynn: Is there a strong argument for saying that the cost of advice should be separated from the cost of the product? Possibly. Should we remove factoring? Absolutely not. If we remove factoring from the protection market it will devastate it without a shadow of a doubt. Customers are not going to be willing to pay £500, or £600, to be sold an insurance contract.
Stephen Gay: I think the FSA's reason for wanting to do this is because they believe protection is substitutable by the adviser for a savings product. In other words, they fear that protection would be a route around the RDR for those advisers who do not really want to take part in improving standards and adopting adviser charging. I think that hypothesis has not been proved and, intuitively, I do not think it would stand up.
The full debate can be seen at www.assettv.com
