A Commission Less World

By Richard Leeson

Richard Leeson has held senior positions at AEGON UK, Prudential International and most recently was Sales & Marketing Director for AXA International. He has been a thought leader in the industry on the strategic impact of RDR. He has authored many articles for trade publications on how RDR is affecting adviser based financial advice in the UK. Richard is also CEO of Adviser Advocate.

At the beginning of 2013, the quality of IT-Delivery of financial services companies became their biggest strength or their biggest weakness. The importance of this change has yet to be felt at the highest levels of executive management. In January 2013 the Retail Distribution Review (RDR) promulgated by the Financial Services Authority (FSA) of UK took effect and had several fundamental impacts on the financial services sector, most of which have yet to materialise.

RDR banned the payment of commission to financial advisers on investment products and required those advisers to adopt new fee charging structures known as “adviser charging”. Financial services companies largely treated this change as a problem requiring a “work around” solution from their IT departments. Having successfully made the necessary changes to remove commission payments from their products by January this year, these companies are endeavouring to return to a world of business as usual.

Business is not as usual. Many companies are reporting falls in new business volumes of substantial levels, Prudential confirmed a 17% fall in bond business and Zurich Life reported a loss of nearly a third of its new bond business in the first half of the year. Success stories seem to exist only where commission is still payable on products like annuities and protection business. Advisers are less inclined to promote products in the post-RDR world and have had to rethink their entire business models. The new mantra for advisers is “time is money” as they consider hourly fee-charging and project fees. This in turn is focusing their minds on where they spend most of their time when not sitting face to face with clients. Administration is a key focus area.

Poor service, requiring advisers to sort out client problems cannot be billed easily to the client. Advisers either have to accept this as part of their service or seek compensation for loss of earnings from the providers responsible. In my own experience in the last twenty years of dealing with fee-based advisers, they will invariably seek compensation.

Increasing compensation claims have focused the minds of the providers I have worked with as they seek to control spiralling costs. This has led in turn to a focused view of the impact of administration excellence on the bottom line. For some providers the use of service level agreements including stated compensation amounts have been a means of reassuring advisers of their administration offering. All of them have increasingly become aware of the impact of IT systems on their service delivery.

Excellence of IT delivery has been key to underpinning excellence of service delivery to both adviser and the end customer. The days of manual workarounds are long gone. In today’s financial services industry and especially so in the post RDR environment, companies need to ensure their proposition are supported by robust systems. To achieve this requires full and early engagement of the IT team in strategic and tactical planning. By ensuring early engagement from the IT team it is possible to resolve development priority conflicts swiftly and efficiently.