With the Retail Distribution Review (RDR) now being implemented almost half year ago, the UK Life, Pension and Investments markets are now starting to experience the real impact of one of the most significant reforms in the retail investments market. This blog is the second of four, which seeks to provide stimulus for discussions on strategic challenges for the different market participants in the post-RDR world.
This blog focuses on the ways to achieve success in providing advice to the affluent / High Net Worth market.
Unless advisors can obtain efficiency improvements by more effective segmentation of their client base, they will only be able to serve profitably affluent clients, a market too small to support the number of advisors currently targeting the affluent.
Although advisory pricing schemes remain hard to compare, a comparison based on typical investment cases of a one-off investment of £50k, £200k, £500k and £1m indicate announced pricing for IFAs to be relatively higher than banks. Assuming consumers are willing to pay the equivalent of 50-100 bps annually for advice, a reasonable range in a low-interest environment, advisors will be driven to focus on individuals with over £200k in investments. However, this route is likely to accelerate the decline of the advisors channel as there will only be place for a selected few, because the number of clients in this space is limited. Instead advisors could do better by focusing on tailoring propositions to the different segments and increasing efficiencies throughout the whole sales funnel. For example, by reducing annual servicing cost per client from £1000 to £500 would allow advisors to profitably serve clients with less than £100k in investible assets.
By tailoring propositions to specific segments, advisors can balance cost levels with the available revenue pools. People in their mid-30s with limited funds are most likely interested in a simple ISA, while people close to their retirement require significantly more advice. The advice propositions, processes and associated costs should reflect these differences.
The other must-do for advisors is to increase efficiency by optimising the sales funnel. Currently the average time spent per advised sale varies between 7 and 12 hours indicating significant efficiency differences. To close this gap, distributors will need to develop fully automated sales processes, differentiated by segment and client need and world-class lead generation skills. In addition, they need to show they are able to retain a highly qualified sales force to build lasting relationships with clients. Distributors who are not choosing this route are likely to end up in a highly competitive environment with eroding margins and are contributing to an accelerated decline of the advisor channel.
View the first blog post in our 'recognising RDR reality' series, or for more information on the RDR, please visit: www.deloitte.co.uk/RDR.
Andrew Power
Andrew is Deloitte's RDR Lead Partner and specialises in
working with Retail Financial Services firms. He has extensive
experience assisting life insurers, wealth managers and investment
managers around strategic and regulatory developments, marketplace
changes, industry economics and operational model transformation.
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