“The rain wets the leopards’ spots but does not wash them off.” This Chinese translation of an age-old proverb may become a warning shot for the incoming FCA as they lead their self-proclaimed charge of interventionist regulation. With plenty of uncertainty still surrounding the long-term effects of the RDR implementation what we know for sure is it’s certainly raining regulation at present with a high number of threshold-focused directives shortly arriving.


For most of us involved in retail financial services, we have the RDR, FATCA, MAR & MAD, MiFID II, Gender neutral insurance and Solvency II amongst others to contend with and we now stand at the relative calm before the distribution turbulence that will surely follow.


This turbulence brings all sorts of issues and complications that need careful deliberation and strategy to ensure we’re well positioned to charter the stormy seas and bring sustainable success to our businesses.

The VAT chestnut: With RDR in particular we seem to have plenty of continued unintended consequences that need our attention, VAT and adviser charging with HMRCs ‘gateway to intent’ for intermediation provided guidance on whether firms charge or indeed register for VAT or not. Yet with the recent European Court of Justice recommendation that all DFM services pay VAT, this has set alarm bells ringing. The issue here, where advice is concerned, is to ensure clarity and evidence in all client communication particularly for suitability letters that reflect the client objections in full. The VAT litmus test is gateway to intent, ask “What have I done for the client” and gage client reaction: rejected recommendation (VAT-able) and aborted transaction (exempt).

For more on VAT watch Les Cantlay in action with Citywire’s David Sandham:

The bare-faced fee: Adviser charge facilitation provides a headache that may blow up in the face of product providers. The debate that once the product boundary is broken as fees are paid form the underlying product, brings plenty of tax consequences so eloquently laid out by the indomitable Rob Reid in a recent press article. http://www.moneymarketing.co.uk/regulation/rob-reid-rdr-adviser-charging-and-customer-loyalty/1057822.article



Don’t break the product boundary and charge direct? Easily said but this can be done if advisers customer service propositions are intelligently positioned. The effervescent Mark Paulson has advocated as much in his recent Money Marketing article: http://www.moneymarketing.co.uk/adviser-news/mark-polson-time-to-reject-provider-charging-and-go-direct/1060565.article





My NMA article also gives 7 key strategies to offer adviser charging value: http://citywire.co.uk/new-model-adviser/adviser-charging-seven-steps-to-convince-clients/a623255



Commission Mind-set: Where I see an iceberg that can sink a liner is in the commission mind-set many market participants continue to adopt. If we take adviser charging facilitation as it stands and apply the validation and decency limits that the regulators require, we currently have a Mexican standoff where product providers seem to think they still control the AC and a minority of advisers think switching may be the answer to fee generation. Add to this the debate around the nature of remuneration between platforms and distribution firms, we then have a perfect storm. My interview with Citywire covers key commission mindset issues:





What we seem to be missing is the fact that the RDR is almost MiFID article 26 gold-plated, where any changes to remuneration, charges and product need to ensure the client experience is enhanced and inducements are banned. This means that product providers must offer comprehensive flexibility on adviser and consultancy charging and verify and validate all fees paid.

FCA and Tickboxes: The very fact that Hector Sants is on record stipulating that the UK regulator will become a “tick box’ implementer of EU regulations and Martin Wheatley seems to be championing the ‘irrational investor’, supports the view that MiFID and its cousin no 2 will cement the case for placing client protection and fair and transparent charging first.


We then need to move on from a mind-set that promotes opaque practice (inducements such as soft commissions, marketing fees or kickbacks) and blindsides the issues that will surely cause a huge headache not only for clients but also for the industry.

Behaviour behaviour behaviour: We can do this by focusing on the attributes behavioural economics brings, and counter-intuit strategy by employing 3rd party dispassionate views, involving focus groups to gather the evidence and provide meaningful debate and making it personal by understanding the long-term implications of continued practice.

There are plenty of firms out there at present who have commendably sought answers to the challenges faced and with this brings innovative thinking and enterprising solutions which can build a robust and adaptive business model. An example of this is in the technological advancements being made to support fee based systems and platform re-registration. Yet we are in danger of entering 2013 and beyond with a ‘commission-hangover’ that will cause damage and dismay to the industry and client relationships.

The regulatory rain is coming, we may not be able to wash away any commission mind-set instantaneously but with strategies that engage behaviour, emotion and cultural change, we have an opportunity to understand, explore and apply organisational change that allows us to comply and compete.



Under the Spotlight


The FSA will morph into the FCA and with a more vigilant judgement based approach to regulation the regulator will be keen to see significant progress in certain areas.

If your running a client facing business whether its B2B B2C or D2C, now is the time to ensure that you have the controls and management systems in place to ride the wave of regulatory change.

At Engage we have focused on 7 key areas:

  1. Strategy: Governance planning and risks: The regulator will need to gain reassurance that you have developed appropriate strategies and programmes to meet regulatory change directives such as the Retail Distribution Review – RDR
  2. Products: How your firm has chosen to operate in the new RDR regime in relation to appropriate product offering to customers and use of legacy products. 
  3. Charging: How are you approaching charging and facilitation for fees is imperative. Are you relying on the product providers or have you already developed a clear system for direct customer charging? This includes consideration of all consequential changes including technology, systems, controls and documentation
  4. Customer value proposition: The regulator will want to ensure your services offer high value and address customers needs at all times. This will include in-depth analysis of how your measuring customer relationships by segmentation.
  5. Distribution channels: How will your strategy adapt to the new regime, and can it cope with the appropriateness and suitability tests?
  6. Professionalism: Assurance the firm is on track not only with qualifications but also gap fill, SPS and on-going training and competency
  7. Business model: Forget if your hankering for independent restricted or even specialist services, is your model aligned to meet your target customers long term needs? 

Post ‘R’ day, along with the inevitable distribution turbulence that will afflict business models, there is no doubt that one of the biggest challenges to the retail investment adviser (RIA): client relationship is clients will only give RIAs 30-40 minutes in their engagement meetings to convey the value for fee based advice and the fact that savvy clients will orphan themselves 2-3 years into a fee based relationship if they do not perceive service value.

Gaining the right people in the right position with the right skill set is just as crucial for advisories as is deciding on a restricted or independent distribution model.

Behaviour in any industry is unfortunately an elephant in the boardroom. When faced with enforced change and challenges we tend to get caught up in the hard facts and ‘serious business’ issues. Yet it is people who build business, people who work for business, people who regulate business and people who buy from business. Behavioural biases come with this territory, i.e. the current financial crises cause is down to a mix of dysfunctional behaviour and irrational reaction. Cause and effect then.

So what can be done about this? Well the first point is to recognise and understand behavioural economics and how it applies to financial services. The human mind is a wonderful tool, yet it does have its downside. Notable social scientists such as Daniel Kahnman, Amos Tversky and Richard Thaler have popularised the view that the human mind is fallible particularly when it comes to financial services. This can then help financial advisers identify the most effective and useful behaviours to build trusted client relationships.

Clients will need to understand quickly how their mind reacts to market movements and their capacity for and reaction to risk or loss. The brain effectively is hard wired to loose, it operates a faulty traffic light system: we invest when we should stay out and withdraw when we should stay in. Neuroscientists know that its dopamine that flows when we’re on a bull-run and adrenaline when the bears come chasing. A classic fight or flight response.

Indeed loss and regret aversion are two of the most devastating biases that need to be addressed. By ensuring they complete thorough client driven questioning at the fact finding stage and facilitating an open and comfortable environment where clients feel safe to offer information around their past experiences, risk tolerance and attitude, advisers will then be able to gain valuable information to include in their portfolio recommendations to ensure a personalised approach that will offer ‘safety stops’ so clients do not make the same mistakes over and over again.

For example it maybe better to stay invested when a paper-loss is made through a market crash than to cut and run. Encouraging client behavioural strategies such as a sleeping on decisions; a counter-intuitive approach, avoiding too much market information and ‘noise’ or spreading options through product choice and diversification can all facilitate favourable results in the long term.

Indeed advisers now really have to ‘walk their talk’ and ensure long-term goals are the focus and rules of thumb (or heuristic decision making) is avoided on both their and their clients part. This behavioural shift may seem basic, but it has been scarcely applied. Unfortunately the world is much the poorer for the myopic, overconfident behaviour that brought such financial devastation with it.

So by fine tuning their own behaviour, gaining awareness of behavioural economics principles, applying them to positively influence clients biases and encourage a healthy relationship with their finances, advisers can certainly add high value and ensure clients realise the worth of retaining their services.

Will simplified advice be abandoned?

With the Mexican stand-off over regarding the release of the FSA’s consultancy paper on simplified advice, we now have the guidance in concrete that this distribution channel will not be a quick win for the industry in gaining the middle market post RDR implementation but a service operating under the ever growing close scrutiny of the regulator with all the risks attached.

Although we knew that simplified advice would always be included with the adviser charging, remuneration and recommendation rules (COBs 6.1A & 9.2.1R) and it would not be a basic advice channel working outside the RDR, the fact that authorise and validate is key and the regulators tendency to bayonet the wounded may see off any valiant attempt at pioneering a state of the art streamlined distribution channel. Indeed we are already seeing smaller outfits such as Churchouse Financial planning throw in the towel on simplified advice.

The main problems may lie in the fact that clients who may want to orphan themselves post RDR due to knowledge of remuneration levels paid or a savvy understanding of the changing market landscape, also NEST auto-enrolment schemes give clients all they perceive they need for pension planning, the Money Advice Service is viewed as a conduit to financial planning and the fact that 49% of the ‘mass market do not have the means to invest may result in simplified advice being abandoned.

Yet Life companies, banks and the larger IFAs and wealth managers may still want to explore cutting edge technology that brings financial advice to the door step of mass market clients. The problem with this is the design and implementation may result in hybrid model which doesn’t actually serve the very market simplified advice was targeted; the potential RDR disenfranchised investor.

If simplified advice is to work, what truly needs to happen is a ‘flip funnel’ approach where the service (particularly technology) is designed around the clients not the business needs, the regulators need to become more inclusive in a ‘co-build’ strategy allowing both the market and the regulator input into service design, and certainly higher professional qualifications need to be employed for any individual delivering simplified advice to ensure market professionalisation is carried forward.

Bold and expansive technology driven to the customers needs should have emphasis on simplification such as transparency and simple product with initiatives such as the Social Market Foundations product ‘Kite marking’ adding great value to understanding and knowledge of product features and benefits.

Indeed simplified advice also gives a marvellous opportunity for the industry to address the elephant in the room, that of behavioural economics and how clients’ irrational behaviour may once and for all be addressed by a standardised service for the very market that desperately needs financial planning.

Regulators nudge strategy applied with industry communication and soft skills geared to coaching clients down a path of self discovery can lead to real understanding of how irrational biases such as inertia, procrastination and mental accounting can be managed and financial capabilities improved.

Easier said then done? Well, in other industries we are seeing early signs of how regulators and the market can come together in the US healthcare system, with, for example, President Obama’s radical new regulation to make healthcare affordable on a mass-market basis. Although heavily subsidised, this continues to result in pushback from the industry itself, but with regulatory nudging Americans may finally be able to enjoy something similar to the marvellous UK NHS system that we often take for granted.

More time and getting heads around the key issues from all corners of the market is therefore needed to really assess the benefits of simplified advice.

Yet with independent, restricted, specialist, generic, execution only, basic and primary advice being toyed with by most market participants in some shape and form and the RDR final straight ever looming, we may see simplified advice being placed on the back burner, or indeed abandoned. I hope not.

The FSA’s much awaited follow-up to CP10/29 for the role platforms play in financial services has today provided the industry with another indication for the move towards full facilitation of client inclusion and clarity in financial planning. There is no getting away from the fact that the product providers have had their day and now the RDR demands transparency and the industry must conform.

As ever there are a few issues to be mindful of. We need to ensure the rule book is understood. The Conduct of Business Sourcebook (COBS) needs to be lived and breathed by all market participants to get to grips with cutting edge strategies that will facilitate better client relationships and aid healthy engagement between industry and regulator.

Issues such as COBS 6.2.15R which focuses on adviser charging can lead some to think that if adviser firms were to remain ‘off platform’ then higher adviser charging is perfectly plausible and within the rules. It’s a grey area, as this platform paper is adamant that the reason for proposed cash rebate and product provider payments to platform bans should not interfere with the client and adviser relationship. At the end of the day the adviser charge has to be agreed with the client and with discerning clients comes the needs for advisers not only to remain competitive, but also to show value.

COBS 6.1E.1R is truly about transparency demanding full disclosure of fees/commissions from fund managers. Indeed COBS 6.1E.2G stipulates if a platform were to accept fees/commissions then obligations to notify the client under best interest principle 6 & 7 need to be adhered to negate any bias.

There are also the issues surrounding the independence ruling in that it is debatable if true independence status can be maintained if only one platform is used by an adviser firm for all or even the majority of their clients. This plus the fact that off platform investments must also be considered if ‘whole of market’ advice is given means (particularly where client segmentation is concerned) a one size fits all attitude and artificial investment spread are to be avoided. COBS 6.2A.4A & COBS 6.2A.4BG attacks independent firms who solely rely on rebates from funds on platforms.

Indeed platforms are defined as just that, platforms and not distributors. This definition is needed to ensure all market participants are under no illusions as to what the relationship should be when using a platform. This is a key area when considering supermarkets, as platforms must maintain impartiality on fund presentation, the paper therefore implies supermarkets may have had their day.

Where adviser charging (AC) is concerned, COBS 6.1B.9R ensures ‘platforms face the same requirements as product providers of they facilitate payment of advice charges’. The main aim is to ensure client inclusion for the decision to agree the amount of charging that applies. Where validation for clients instructions are concerned then COBS 2.4 is necessary to confirm the rules for reliance on others. The main concern we have is the issue concerning the cash accounts use for AC facilitation, definition on protection re ICAAP rules needs to be enhanced or at least mentioned to protect client money in event of liquidation for e.g.

COBS 6.1A.22R is all about ongoing services regarding AC and it is the advisers responsibility to ensure that fees are appropriately paid and for those clients who orphan themselves, then the advisers must stop the AC. engage’s Viability activity based costing software will aid clear fee monitoring and management to ensure advisers and their clients are accountable and all activity is validated in the necessary way.

So for some this paper may have been a damp squib with no ground-breaking revelations, but I think it’s another positive step in the direction for transparency within the industry, clarifying the need for caution for cost benefit analysis for rebate bans, definition for execution-only strategies as encompassed within the platform rulings, a penchant for unbundling and clarity for client communication via technology and indeed knowing how the COBS applies to not only Platforms but also to the RDR.

A quick summary:




Key issues



 1. Overview  1.     Payments by providers to platforms2.     Cash rebates to clients.  CP10/29wanted to enhanced transparency and disclosure on these payments but with no direct ban (see page 116). A ban was due though on cash rebates to clients.The position has changed to the extent that the FSA wish to ban both outright come Jan 1st 2013, but with work carried out by TISA and other industry bodies, the FSA will take further consultation with any ban starting no earlier than this date. NB the Aussie did a 180 degree turn around on allowing rebates in at the 11th hr in their regulatory ‘revolution’.
 2. Defining a platform and distributing products.  1.     CP10/29 defined platforms and service providers. Yet question marks remained over providers such as SIPPs/ISAs/CIS/AFMs & if Execution only applied to new definition.2.     Adviser Charging; to gain momentum on platforms, through cash a/cs.3.     Adviser firms use of platforms  1. PS11/9 defines ISAs that offer multi funds as platforms but Life co’s, SIPPs CIS, AFMs are not.i.e. those arrangements offered by private client investment managers that are adviser paid and ancillary are not incl.Execution-only is included to the extent that COBS 6.1E.1Rrequires disclosure to client of remuneration. i.e. best practice applies.2. Adviser Charging on platforms to follow product charging as per COBS 6.1B.9R i.e obtain and validate client instruction. Funding and servicing of client accounts need to be monitored and in clients best interests. (e.g. if client orphans themselves) BUTthere is no mention of escrow accounts or indeed ICAAP rulings! (Page 180).3. Independence standards need to be met when ensuring platforms are right for clients. i.e. no bias and restriction on platform recommendations. COBS 6.1E.1R=transparency of fee. Thus care needs to be taken with DFM/supermarkets that need not conform?Single platform use depends on the clients interests.
 3. Payments to platforms and consumers  1.     Product providers to platformsCP10/29 addresses potential conflict of interest here and recommend disclosure but no ban.2.     Cash rebates product providers to clients; Rebating seen as a style commission ‘throw back’  1.     Unbundling seems to be preferred in this paper with proposed ban on product provider payments in order to separate product and platform charges. The RDR objectives of consumer clarity of product charges therefore needs to be upheld. BUT before the ban maybe upheld, impact analysis needs to e completed.2.     Ban to go ahead. The objections to CP10/12 re cash rebating aiding fees, exactly the behaviour FSA want to cull. RDR rules stipulate that client, adviser and providers agree the cost of advice thus this may vary and rebates cannot cope with this and set by provider.
 4. Re-registration and capital adequacy.  1.     in-specie re-registration standards to be recommended to all nominee companies.2.     COBS 6.1G.1R re-drafted to reflect that not all firms maybe nominee based.3.     Re-registration to take place in reasonable time frame.4.     Share classes and bulk trfrs  The work conducted by TISA and the platform re-registration panel is to be commended and works well with the papers emphasis on ensured best practice and best advice for clients wanted independence of choice and transparency in comparison of available platforms features and benefits.Re the issue on share classes the ban on cash rebates does not mean a proliferation in share classes due to unit re-investment allowance. Re Bulk trfrs most platforms should facilitate re-registration, they’re big enough!
 5. Investing in authorised funds through nominees.  1.     Platform investors to have same access to funds as direct investors.2.     Key Investor Information KII a and associated costs of information for clients.  It is the general industry view the platforms have a rosy future and thus more business will be written and more funds available on platforms.Electronic fund information is to be encouraged with hyperlinks to repository of information on relevant fund information.Short reports as used in UCITS IV are to be recommended i.e. synthetic risk and reward indicator (SRRI) as part of KII. Short forms to be provided 1/4rly.Clients to be kept informed and engaged as is currently on voting rights i.e. CP10/29 proposals cancelled. BUT with key guidelines.
 6. Cost benefits analysis.  

  • Decrease in platform compliance costs from £174.6m to £103.8M (due to rebate ban)
  • One off cost £55.4m (platforms £40.4, £2.9 fund mgers, £12.1 intermediate fund holders).
  • Ongoing Costs £48.4m (£20.4 platforms, £28 intermediary fund holders –non for fund managers)
 What we need to watch out for and that is not factored in to the cost benefit analysis is the fact that advisers may increase their fees in accordance to the ‘missing rebates’.

The recent Treasury Select Committee (TSC) response to the FSAs Retail Distribution Review directive was released to much fan fare and instantly rebuked by the FSA with a slight lack of tact. A war of words has ensued and angered MP’s want the FSA to reconsider their response. The FSA are now having to re-think their position in particular to the possible waivers to the RDR. What seems certain (at present) is the RDR will go ahead on January 1st 2013. This still leaves time for change, certainly with issues such as grandfathering of qualifications, a sunset clause for legacy trail commission payments, and any possible solution to the long-stop concerns and clarifications on rebates.

I have compiled a table below which will appear in my book “Winning Client Trust” to be published in September (hence the references to chapters in comments column) on the key issues are raised by the TSC and given the comments as I see it on the possible solutions and interpretations of the issues raised. There’s still plenty to play for and time to debate and garner support for the major issues surrounding VAT, Grandfathering, Long-stop, Consumer awareness and financial capabilities, and legacy/rebate issues.


Treasury Select Committee –TSCRDR report





 1. Level 4 qualifications and ‘grandfathering’.  FSA argument for level 4 is weak. Nevertheless there is some merit in move to higher qualifications.Cliff-edge nature of RDR & ban on Grandfathering could be mitigated with 12 month extension to deadline i.e. January 2014. Supervision of unqualified advisers an option as TSC are concerned at potential loss of expertise. There is no doubt that higher qualifications in any profession can only be a good thing. I would not argue for a longer lead in period, so I disagree with the TSC view on a 12 month delay to the RDRimplementationindeed the FSA’s determined stance is for a 2013 RDR start.Supervision is always an excellent approach to be encouraged within the industry with mentoring and coaching no matter what the experience of qualification levels. There’s still time for the FSA to change their mind, for e.g. the Australian regulators had a change of heart of rebating in the late 1990’s.


 2. Commission.  Customer Agreed Remuneration (CAR) may create a market price for advice Problem is with customers viewing advice as free under commission arrangements thus setting of a price for advice may lead to reduction in consumption. Yet this may also increase customer scrutiny in advice.Trail commission needs to include advice and impact analysis needed on removal of trails. Industry needs to guard against increase in trail up to RDR deadline, currently 2013.

Factoring to be bannedandTSC agree with FSA.

As stipulated in chapter 6, the CAR involves shades of a ‘commission mindset’ and such a ‘hangover’ should be avoided by contemplation of the ‘bare faced fee’. Due consideration of ICAAP rules and ring-fencing the client monies need to be addressed by the TSC with escrow accounts in place to protect client monies against liquidation or other adverse circumstances.Trail commissions are essential to advisories thus need to be protected yet evidence that advice is being given and clients paying trail are serviced. Again imagine the perfect storm, we have a market crash, trails collapse, yet fees remain consistent.


 3. Level Playing Field.  RDR is for all retail providers i.e. banks as well as advisers. FSA (FCA) to report after one year and annually thereafter on RDRimpact on vertically integrated firms’ remuneration structures. This is to cover any potential breaches.Transparency is key to ensure the IFA community can evidence it is not unfairly impacted bytheRDR. It is essential to understand that the RDR is potentially beneficial to all retail market participants, thus the current loss of Barclays, HSBC and now CO-OP advisors and bank focus on platform only models maybe a ‘knee jerk’ and premature reaction.IFA’s may still benefit from banks withdrawal as long as transparency on RDR impact is evidenced as fair for all.


 4. VAT Confusion abounds on when VAT is and isn’t payable and how much it will raise the cost of advice. TSCrecommendthe HMRC and FSA liaise with them on when payable and why it has not in the past. This along with additional revenues and whether further reform is needed are essential for clarity on impact on advice. My consultancy engage partnership ltd are already working with the HMRC to bring definition to the VAT issues. As we have seen with cases such as insurance wide vs HMRC, which illustrate that intermediation tied to product is non VAT-able. (Chapter 8).
 5.Types of advice.  Confusion may abound with customers around independent vs restricted advice. Public information needs to be made available on such distinction and in particular that restricted may mean restricted by product or by firm.Simplified advice should be championed and has potential to serve the ‘mass market’. This may involve straightforward products and services, highly automated with internet-based offerings. Qualification standards need definition.


Advisers are already determining where they are taking their advice business models. Regulatory arbitrage is a factor where non-advice (execution only) is concerned and we are already seeing IFA’s and life companies moving towards this route.Restricted advice needs careful consideration as does simplified advice to potentially facilitate advice to the mass market. Does this mean that such distribution channels can then facilitate level 3 qualified advisers?
 6. Transition.  Adverse incentives such as commission leverage and increased trail pre RDRimplementationneed to be avoided. Pre-implementation churning and post implementation holding of clients (where it is not appropriate) need to be pre-empted by the regulator.  Obviously it would be detrimental to the longer term industry/client relationships if  increased trail or commissions were to be taken before January 2013. Behavioural economics need to be understood with hyperbolic discounting to be managed. 
 7. Costs and benefits.  Overall the RDR aims are laudable yet there maybe some market capacity loss with advisers non compliance. The potential reduction in adviser numbers may disadvantage savers by reducing cost and competition.Regular reports on adviser levels are needed and a 12 month delay to RDRimplementation will aid those advisers wishing to remain in the industry and temper the cliff-edge nature of theRDR and required qualifications.


Issues that need to be addressed are product providers factory gate pricing and will a reduction in supply initially raise costs.Where adviser charging is concerned a ‘price for advice’ will initially be set, but there should be a period of trail and error before a realistic level is reached and clients become attuned and comfortable with fee based advice.


 8. European and international issues.  FSA should act to remove consumer detriment in financial services. The risk at present is on ‘front running’ Brussels with theEUPRIPS initiative which is yet to be fully defined and with no implementation date.Passporting may seem to be an opportunity for advisers to counter the RDRobjectives, Yet the FSA is clear that host state standards prevail and cannot be undermined or evaded. FSA to be vigilant on this issue.

Where High Net Worth (HNW) individuals are concerned they may not want to participate in RDRrequirements, thus FSA need to define direction of any modifications (e.g. opt outs) as necessary for HNWinvestors.

The fact that Australia are adding insurance into their regulatory regime remuneration changes and Holland is approaching their regulation of financial services in a ‘RDR’ way means the UK is not alone as the TSC seem to think.Where Europe is concerned, the PRIPS initiative seems to be garnering increased support and with pension reform (similar to UK’s) there is a consensus for more interventionist regulation to encourage increased professionalisation and aid better financial capabilities for the consumer.


 9.FCA.  FCA will have different objectives to the FSA and thus the Treasury needs to understand and state its contentions as to whether the RDR is consistent with the FCA objectives.Accountability of the FCAneeds definition, particularly with vague nature ofFSAaccountabilities.

Long-stop needs addressing and the committee on the Draft Financial Services Bill should consider if long-stop has a place in redress process. TSC believe long-stop would need to evidence consumer interest.



There is no doubt the regulator needs to be accountable. The TSC must be commended for its work so far on the suitability of the RDR reforms and the protection of market participants (e.g. IFA’s) in the unintended consequences as documented in chapter 1. 

The end of another interesting week at engage partnership. Started with our latest Citywire interview on RDR change challenges being broadcast and ended with an interesting exchange with Lord Turner and Hector Sants at yesterday’s FSA annual public general meeting.


I am pleased to report that after much hard work and tinkering from our two highly motivated and enthused techy experts, Les and Chris, we now have 2 further analytic tools available for financial service organisations which add extra value for activity based management, in client facing activity and key performance indicators measurement for CEO’s and senior management.

Our Viability tool is designed as the first smartphone app to measure and analyse client focused activity which can be employed by financial advisers, wealth managers and stock brokers to assess time spent with the client and justify adviser fee charging. This pivot technology feeds back to a compliant centralised dashboard which may then produce detailed timesheets  and spreadsheets to give the business and the consultants the information needed to justify their fees and the ensures clients have no point of redress as the information is input whilst they are in their advisor meetings. We already have a client ready to go for a 3 month trial.

SYSC-Board is similar in monitoring and tracking CEO and senior management activity in ensuring they are up to speed with regulatory demands and their KPI’s and sits as a dashboard app on a smartphone or pc/laptop computer. Both analytic tools are easy to use and are built around the business, regulatory and clients needs.

We then move onto Related Vision software which for the first time means intermediaries and financial firms can measure their internal (departments) and external (clients) relationship capital. If you read my last blog on this subject then you can see how important it is to track where our relationships are with our associates and clients and ensure they are a true partnership which creates fair exchange and high trust. Related vision will be available in September this year and sits with our ‘Better Client Relationships’ modules.

We then move to Mr Sants. As some of you know I’ve spent the last 12 months writing my book entitled; “Winning Client Trust; The Retail Distribution Review and the UK financial services battle for their clients hearts and minds”.

Well as I was offered the opportunity to pitch a question to Hector and Lord Turner yesterday at the FSA annual meeting, I off course took the opportunity to pitch my book and low and behold, both the top tier regulatory officials will accept a copy (free off course!), If you don’t ask, you don’t get I guess. My question was tilted at the new ‘twin peak’ regulatory bodies the Financial Conduct Authority and Prudential Regulatory Authority and the fact that the risk with such an arrangement is, it’s good for the short term maybe, but what about the long term issues such as financial capability of the general public and education on behavioural economics? Hector Sants seemed to think this is in hand, yet more work needs to be done with help of 3rd party consultants, enter engage…..

We now have an active summer upon us, the books with the publishers and will need a round of formatting and we’ve got the book launch to organise for September. The Analytics tools licensing will be fully available in August and ready for distribution. Finally, but not least, the engage ‘Better Client Relationships’ programme will be launched 3rd quarter 2011 in synergy with our related vision software to assess the quality of organisation’s relations with their clients and give techniques and coaching to stop a ‘silo’ mentality where client acquisition processes can cause battle grounds and be detrimental for the long term benefit of all parties.


So all in all an interesting week, much to build on and much to do to ensure we facilitate transparency for our partners services and products and engender and maintain their client trust. Enjoy the weekend.

As i’m sure you know, we now live in an ever connected world, yet one which seems to give us little quality time to connect in meaningful and productive ways. How often have you thought, “i haven’t got time too” or “where did today go..” or “how on earth do THEY have the time to…” as we go about our busy lives? As we become more successful and grow older time seems to become a scarce commodity and one which we may not appreciate until its too late. So how can we begin to ‘gain time’, by this I mean manage our time more effectively and efficiently  to ensure we maintain and increase business success and enjoy a healthy work-life balance ?

I have found (through more error than trail) that a key to the seemingly ever demanding world we line in, is to take time and sit back and watch and begin to decipher where you have gained key and successful relations in your personal or business lives that have added value and quality to your business or personal objectives? Through gaining and working with high quality networks and relationships with key people or centers of influence we may begin to spend our time more wisely and gain the results we crave more efficiently and quickly.

The very act of taking some time out of your schedule to plan those meetings with key people, to decide which networking event or a coaching programme to join is crucial to gaining skills and knowledge in what we call relationship capital that measures the value of your relations within the world you live and participate.

No system as yet has actually been devised to truly measure relationship capital, the nearest we have at present is social capital where we can measure our influence and authority through various web based services such as KLOUT which help us see how our ‘social pull’ or standing amongst our peers or within our industry. Social media has a big part to play here and without a clear and coherent social media strategy, we could find ourselves well behind the curve before we know it. Just look at facebook, linked-in, twitter and ecadamy to name a few, their influence is growing strongly day by day.

Relationship capital in business terms maybe looked at as ‘good will’ and certainly solicitors and accountants use this term frequently. On an individual basis, the relationship capital can be with a professional and their client, the value will be higher where other individuals also have strong relations with the professional and the client, or people who influence the buyer. This is shown graphically below;

As David Lambert co-author of ‘Smarter Selling’ writes; “Of course, relationship capital is higher where relationships are with people who have power, influence, or both. Influence is often typically associated with power and we tend to be naturally attracted to power – which often attaches to job titles.  Where sometimes mistakes are made is where the influence of someone with a less impressive title is overlooked.”
So what does this mean, particularly when we are searching for ‘gain time’ strategies ? Well if any one has heard of the power of business joint ventures or partnerships will tell you, high quality relationship capital will leverage your return hugely in efforts placed with the right people with the right relationship capital. This will mean you will seemingly gain time and begin to spend your day in a better space where the right relationships are in place to give you the quality time to do the very things you want to.
In business terms this means seeking out those who can help your cause, relationships that offer a truly reciprocal nature, a win-win for both sides and will leverage yours and their influence in your market space. Where client relationships are concerned, knowing what your clients need, who they know and trust and how they interact within their field adds to the relationship capital. This has a tipping effect into personal lives too and with others providing a helping hand to your business efforts, a more rewarding work-life balanced can be achieved.
Where financial services are concerned a comprehensive understanding of behavioural economics needs to be attained for any firm and their people to gain client trust.
Understanding client relationships with their financial planning and their capabilities to act upon advice and services offered can then generate  high relationship capital. Services maybe tailored to meet clients needs and make them feel appreciated. Without this then a transactional relationship exists, one that falters when it comes to added value and true understanding of the business worth.
So whatever your business is and wherever your interests lie, with the advent of social media and social capital comes the need to focus on,  measure and nurture our relationship capital. Without our high quality relationships we’d be far worse off and just maybe complaining of having too much time on our hands with little or no reward.

Why has the Industry lost it’s voice?

Individuals such as I spend their Sunday afternoons analysing the responses to the Treasury Select Committee (TSC) regarding the Retail Distribution Review (RDR). Is this a constructive task, you may ask? Constructive perhaps not! Instructive yes! Let me share with you what I learned.
Of the 205 responses to the TSC which were made public only a small number of providers responded. Perhaps this was because they preferred to make their input via their trade bodies namely the ABI and ILAG, both of which put in such anodyne responses which could only flag up to the FSA that no one is going to mount a serious challenge to the RDR. The providers who did respond developed a common theme, there is not enough time and can we have some further clarity on simplified advice as, reading between the lines, we dearly would like to get involved in simplified advice, but we do not want to risk another stakeholder debacle, so let us have some more on the regulatory framework if you please. However the response from Lloyds/Scottish Widows was most instructive:
“5.6 The adviser charging proposals should be implemented. But HMT and HMRC must be fully engaged to provide absolute clarity regarding the income, capital gains and inheritance tax treatment of the ‘adviser charge’ and corresponding impact on the consumer. This clarity is needed to help facilitate a very radical change to the operation of the UK advice market and is required urgently to allow providers to build the systems to administer adviser charging. Ideally, tax relief should be available on the adviser charge.”

Given that this was just over two months ago what on earth are we playing at when these basic questions remain unanswered? Perhaps the question is now answered with the recent Budget announcement regarding the removal of Protection business from the I-E tax system. Scheduled for starting January 2013 this is a nice levelling of the playing fields.
I am confident that the general direction of the RDR is right. However I am far from confident that the implementation is going to go that well. We are after all about to create the largest change in direction this industry will have seen in the last two centuries. One would have thought the level of planning and understanding would have been greater. I think that the problem may be simply that we cannot imagine a post RDR world. I am sure everyone understands the guide book syndrome. Many times I have read guide books in advance of travelling to a particular destination ad you know what? – the really great questions never come to me until I arrive, no matter how much time I spent reading up in advance. Sometimes the culture of a destination is just so alien that I simply could not imagine the questions to ask, and more importantly. would not have believed the answers. RDR is exactly like that. A post commission environment is very alien to the Industry. Going back to the TSC submissions only 39 firms out of 205 were broadly in support of RDR. The education establishments such as the CII were supportive without any issues, the Providers although broadly supportive all had issues. Of the IFA s who were supportive most misunderstood adviser charging (AC). Adviser charging is not commission offset or project fees which resemble commission. I like to think of it as a bare faced fee i.e. not anything masquerading as something else or hidden in any documentation.
The FSA provide for adviser charging paid by third party firms to be authorised and validated, yet have provided no clear guidelines on how to do this. In my mind there are only two options available. The first is to write out to the client with something akin to the confirmation of a direct debit process, the second, which I have to say I favour, is to provide an agreed copy invoice to the third party! This latter method offers the most transparency and would assist the adviser firm to think about the VAT issue and perhaps avoid problems in the future.
I have already encountered firms who are moving clients to discretionary management and the inevitable Distributor Influenced Funds (DIFs) explaining to clients that this is a necessary move because of the implementation of RDR. Fine if that is what suitability dictates but if it is just a way of avoiding AC – shame on them. Happily the FSA seem to be aware of this possibility and according to their recent risk conduct outlook will rigorously police such behaviour.
The hard reality is that the FSA have brought about the “bare faced fee” by a good deal of subterfuge, and perhaps the end will justify the means, but in changing the distribution system they are undoubtedly going to throw many people who need quality advice into the hands of something called ” Simplified advice” We are quite late in getting this off the ground and I for one await with much interest, the FSA paper on this, promised early summer. It probably is possible to come up with some sort of systemised process although many would disagree with me. The issue will be the massive detriment risk that could be built up if something is wrong or not updated swiftly. Optimistic, as I am, I am far from confident that simplified advice can be brought about in the timescales now available.
Whilst we wait for the paper, perhaps someone can provide me with answers to the following:
There seems to be a conflict between COBS Rule 6.1A 8 and 6.1B 5 where 6.1B 5 seems to suggest that commission can be paid if it facilitates AC. We presume this is loose drafting or is there some explanation we are not aware of?

We also find some terminology used in comments and statements made by the FSA, which suggests AC can be made “through” the Product, unhelpful. We believe what is meant is that AC can be deducted from the premiums or contributions being made i.e. before the contribution passes through the product boundary and before it becomes part of the product and its subsequent payment accounted for as part of the product charges. This would then be in line with 6.1 A. Would you agree?

Life Assurance Bonds
Post RDR if a client invests £100,000 into a Life Insurance Bond and the adviser charge (AC) is £3000 do we presume that that the amount for the 5% tax free deferral is based on £97,000 and not £100,000?
In the above case do we also presume that any tax calculation such as the amount of gain in the Bond will be based on the £97,000?
Discretionary Management.
Where a discretionary manager currently shares 0.5% of their 1.25% management fee and pays this to the IFA we presume that this will have to cease. The Discretionary manager may arrange the payment of the adviser charge from any cash account held under CASS rules or by selling units or shares into the cash account provided authorisation is obtained and then validated?
We presume that a facilitated adviser charge is not a trading expense of the paying firm. Although we presume the administrative cost of offering facilitation may be a legitimate trading expense?

Accounting Issues
Do we presume that nothing further has happened in relation to I-E issues and that AC will not form part of E?
We presume that adviser charges being deducted as part of facilitation should be part of some “escrow arrangement” or should be safeguarded in some way to prevent adviser charges being taken by a liquidator. We can see issues regarding the timing of this safeguarding in relation to the requirement to validate. Has any thought been given to this?
Should a client stop an adviser charge will it be released to the product or kept in escrow pending any legal action the adviser may wish to take?

Pension and AC issues
We presume that the concept of a “product boundary” will become important in relation to adviser charging. For example a cash account may exist inside the Pension Product Boundary in the case of a SIPP, and at the same time, if for example that SIPP is on a platform, there could also be a cash account outside the Pension Product Boundary. Adviser fees will be allowable without being classed as unauthorised payment for Pension purposes, if inside the Pension Product Boundary, and would also gain tax relief. It would therefore be in the client’s interest to pay adviser charges from the Pension Product Boundary and not from the external Cash Account. How does this fit with rule 6.1A 8?

Regular Premium contracts
The method, as described by the FSA, for deducting AC from regular premium contracts risks some products becoming non – qualifying – do we presume it is the adviser who must ensure that the payment of AC does not render the product non-qualifying?

We presume that the FSA is aware that most technology has been developed for Adviser use and may not be suitable for customer use and that there are issues with the legal control of technology being used by advisers post RDR.
We also presume that the FSA is aware that the technology changes needed to support these operational changes are almost certain to be not delivered in the timescales remaining. Is this correct?
Does the FSA have an answer to the problem of on-going charges becoming a discretionary expense and that many customers may choose to “orphan” themselves i.e. not appoint another adviser. Many providers and very definitely “platform service operators” do not have resources to deal dwith customers directly. Has this been considered?

We do not see any change in the way that TERS are calculated. Depending on how Fund Managers respond to RDR are we correct in assuming that if they create “no AC load ” share classes alongside existing classes an adviser would have to recommend the new class for new purchases? Best execution rules would suggest that this is the case.
If a platform class of share is created to accommodate a platform we assume that it would not be in the customer’s interest to recommend that class if it meant that the share was now tied to that particular platform.
Share classes which contain bundled charges are going to produce higher TERS. Do we know if the KID proposed by UCITs IV makes any change to this?

The new guidance from the ABI/HMRC did not exactly clarify the position and most IFAs are unsure where this has been left. In obtaining validation of the payment of an adviser charge will it include whether the payment is inclusive of VAT?

A Blog for RDR


Engage Partnership Ltd announce their new blog covering the UK’s Retail Distribution Review (RDR).
The need for clear, unambiguous communication, processes and understanding will be paramount for organisations’ successful implementation of the RDR.  EPL have developed a suite of best-practice RDR business models – the Efficiency and Transparency Index (eTpI™) allied with behavioural development programmes to familiarise market participants (Banks, Platform & Product providers, IFA’s and Wealth Managers) with the requirements for RDR compliance.

We welcome feedback and opinion from everyone involved with or affected by the financial services industry.