Anyone who has been closely involved with preparing for RDR in the individual market will be far from surprised by the FSA’s views on consultant charging. Entirely worthy objectives appear to be being undermined by a lack of practical understanding of the dynamics of the market, and this seems even more unnecessary in the corporate space.
Whilst the corporate market is not a perfect one, it is easy to question whether the regulator’s proposed remedy will create more problems than it solves. As in the individual sector, the main loser looks likely to be the average consumer who will find the financial advice they need increasingly unaffordable.
In the individual market there is mounting evidence that fund management groups are outflanking traditional life and pension providers as distributors restructure their propositions in preparation for 2013. They are increasingly building relationships which leave the life office as effectively suppliers of commodity services to many of the largest distribution groups.
Faced with increased pressure on their own revenues many large distributors see the way forward as increasing their share of the value chain by offering their own investment propositions. These are “manufactured” for them by fund management groups. Essentially life office simply provides the tax wrapper and administration. In the corporate market those same providers need to move quickly to avoid similar situations arising.
This may lead to a fundamental shift in the way most large pension advisers operate.
Technology is increasingly enabling organisations to assemble the component parts of the propositions they need to support their clients from a range of different suppliers. Larger firms will increasingly build their own platforms and plug different suppliers of fund management, group risk and other related services into their own employer and member facing services. As large corporate advisers increasingly put in place their own client facing propositions there will be a need for providers to develop new services to support them. Whilst there may be a temptation to resist such developments for the reasons outlined above, this could be a serious strategic error.
The information needs of one major corporate adviser will be substantially the same as any other, and the same is true of providers
Yet at the same time supporting a wide range of different solutions is potentially a costly process. Although there may be a significant number of national accounts who all warrant technology support, if their priorities and development agendas vary too significantly this will dilute the resources available. Consequently there are real benefits in those competing adviser and provider businesses working together to agree the roadmap for future development. In many ways the raw material of financial services is data; it is what each of the actors on the stage need to play their parts.
The information needs of one major corporate adviser will be substantially the same as any other, and the same is true of providers. With increasing numbers of corporate advisers developing their own technology solutions I believe it is time for an increased level of co-operation between the various parties. In recent months we have been talking to an increasing number of major firms about the shape and functions of the services they are building. Last month we held a workshop for a number of leading benefits consultants, corporate advisers and technology suppliers to consider their priorities and development agendas.
As we anticipated, there has proved to be a significant appetite for co-operation with firms who might naturally be thought of as competitors recognising the benefits of working together to achieve quicker and more consistent delivery across the market.
Arising out of this work F&TRC is developing an agenda for collaboration within the employee benefits and corporate adviser market, to help address the challenges of consultancy charging. This will be published later in the year together with an action plan outlining the areas it has been agreed to address first.
RDR and consultant charging will inevitably lead to a narrowing of margins across the marketplace; this will make it more important than ever to reduce all possible avoidable costs from processes. Manual intervention must be kept to a minimum and automation introduced wherever possible.
Any organisations wishing to participate in the agenda for collaboration should contact Poppy Morgan at F&TRC on 020 7659 2345.
