RDR switch to charging fees is protection opportunity

Phil Jeynes is head of account development at PruProtect

I think I may be the only commentator currently blogging who sees the forthcoming change in charging structures within Financial Services as no big deal.

Just to get a couple of objections out of the way early on; yes this is another piece about RDR, but hey it is quite big news still and no, I am not currently an adviser and therefore will accept a certain amount of “ivory tower” criticism.

With that said, the contention of many who see the move from commission to fee charging as largely untenable for the majority of their clients, seems to be that they have not paid fees in the past (being aware of the long term cost of commission but happy to mitigate that cost by spreading it over time) and simply will not be able to swallow (or afford) up front charging for advice.

Examples are often cited of trying out a fee charging model and seeing the client walk away to transact business with a commission based competitor. This argument has one major flaw; post RDR there will not be a commission based competitor and so the experiment is not being conducted under proper controls.

Secondly, why try and charge a client a scary up front fee, payable whether or not the proposed transaction takes place?  The reasoning tends to be that the time involved researching and recommending, means that a fee should fall due even if the client does not ultimately accept the advice. Fair enough, but this is not how a commission model works currently: it is an all or nothing proposition, just like a “fee payable on completion” model would be, complete with all the inherent risks this poses to an adviser giving up his/her time to fact find and present their recommendations.

Finally, those advisers looking at how they will alter their charging model in years to come should remember that there is one area of financial advice exempt from the commission ban.

The stagnation of the protection market and the resulting gaps in cover for the overwhelming majority of families in the UK has been well documented and much lamented.  It is true to say that part of this problem has arisen since some IFAs who consider themselves “wealth”, “investment” or “high net worth” specialists, choose not to discuss protection with their clients in any meaningful way, seeing it as removed to some degree from the core reason for the customer engaging with them.

What we are seeing as our rapid growth in new business continues, is more and more such advisers moving back into the protection world, attracted by the prospect of ongoing commission and using this as a tactic to offset some of the fees they would otherwise need to charge their clients in a post RDR world.

I believe that this model is not only a feasible way for advisers to transition to the post-RDR world (picture me at this stage climbing to the top of my ivory tower and taking the high horse I keep in the roof garden for a gentle trot), but will also benefit the customer who may not otherwise have had protection advice.