Altus

After 3 years of consultation and debate the FSA has finally unveiled its proposed amendments to the regulations that govern financial advice for investment products (CP09/18). In a nutshell the proposals will recast advice categories, tighten up on professional standards and, most dramatically, end the practice of product providers using commission to secure business from advisers. All three areas will have major business impact but it is the last one that represents the biggest operational change.

Adviser firms will see their processes, systems and accounting turned upside-down by the shift to a fee-based model. They will be particularly affected by the need to justify ongoing fees through ongoing services. Platform providers will no doubt be keen to emphasise how their platforms can help advisers cost-effectively provide ongoing services that consumers are willing to pay for. Adopting a platform will not magically ensure RDR compliance: IFAs will need to worry about their “relevant market” obligations and all advisers will need to have an explicit cost model for advice.

At first sight removing commission may sound like it relieves product providers of a hugely complex part of their operations. However it’s likely that the majority of customers will pay the advisor charges via the product provider. Creating the direct linkages between product charges and adviser payments that this will require post-RDR will require major re-engineering of core systems. In many cases the whole approach to product pricing, valuation and charging will need to be fundamentally rethought. Supporting commission payments on existing policies for many years will stretch product providers’ ability to support and maintain existing applications economically.

Charting a course through such a major overhaul of modelling, pricing, POS, contract engine, agency and payment systems is a daunting prospect. Identifying the right bits of your business and systems landscape to update will be key to successfully implementing RDR. Altus’s architecture framework has been specifically developed for the FS industry, and provides a rich library of visualisations to solve this sort of business and system challenge. We understand the implications of RDR and have a track record of helping our clients deliver complex change. Contact us to see how we can help guide your organisation through the turbulent waters of RDR.