This article was first published in the November 2012 UK edition of Accounting and Business magazine.
Financial advisers and wealth planners are bracing themselves for a major upheaval in the way they work. From 1 January 2013, new rules will govern the way they earn their money, and there will be a fundamental shift in power away from the financial product providers towards, at least in theory, their customers. This shift could have a direct and significant effect for accountancy firms.
Many accountancy firms have been providing financial planning advice and services to their clients for years. Sometimes this is through appropriately qualified individuals, sometimes through a wealth management company that is part of the overall firm. The changes, as set out by the Financial Services Authority in its Retail Distribution Review (RDR), could open up more opportunities for these firms and their wealth advisers.
‘The aim is to instil more confidence and trust in the industry and establish independent financial advisers (IFAs) on a fully professional standing along with lawyers and accountants,’ says Julia Parsons, financial services partner of Reeves Financial Planning (RFP), part of accountancy firm Reeves. ‘This will be a good opportunity for firms such as Reeves, which has both IFAs and accountants within the group.’
The RDR effectively scraps commission payments for certain financial products. It brings in higher minimum qualifications and redefines the nature of ‘independent’ advice.
The changes are part of an ambitious programme to simplify the market and make the financial planning process more easily understood by end clients.
Commissions, which at present are usually paid to advisers by investment product providers, will be replaced with a system of fees, agreed upfront, for advisers’ work and advice. This will help customers understand exactly how much they are paying for a product – and how much for the advice.
Transparency is also guiding changes to the type of relationship the financial adviser has with product providers. The current multi-tiered system – single-product provider, multi-tied agents, whole-of-market advisers, independent advisers – will be far simpler. Under the new rules, advisory firms will now be classed as ‘independent’ or ‘restricted’.
To be classed as independent, a firm must be able to show that its advice is based on a comprehensive and fair analysis of the relevant market, and unbiased and unrestricted.
If its advice does not meet this standard, it will be classed as restricted.
While the financial advice industry may be facing these changes with a certain trepidation, some accountancy firms are confident it is business as usual for them and anticipate benefiting from any industry shake-out.
There for the taking…
Ian Pickford, director of Mazars Financial Planning, says: ‘We have been operating with an RDR model for the last seven years, so this will not affect our business. But it presents a fantastic opportunity; it is there for the taking.’
He believes the shake-up should provide good opportunities for accountancy firms. ‘This is an area of advisory work that sits very well with clients, but firms need to understand how to manage an advisory business, which is very different from running a compliance business.’ Pickford explains that it can be quite a shift from doing a set of accounts for someone, to talking about their personal life and finances.
Other advisers such as Stephen Jones, chief executive of Cooper Parry Wealth Strategies, part of accountancy firm Cooper Parry, say there is an obvious fit between, for example, tax advice and wealth planning. Jones says: ‘You stay ahead of the game by listening to what your clients want, such as closer integration of tax and financial planning.’
The key RDR change of fees rather than commission is, after all, how accountancy firms already work. Jones says his firm was RDR-ready long before RDR even existed.
Parsons agrees. ‘We have known about the RDR for six years and have been preparing for it so our clients should not see much difference,’ she says. ‘We have been agreeing adviser fees in advance for some time, together with service levels, and pride ourselves on providing clients with a clear explanation of the services we offer and the charges for those services.’
Parsons expects potential clients to shop around, as they will be able to compare charges and services easily. ‘Our overall group offering encompasses professional advice and specialisms across a wide range of clients’ financial needs, so we feel in a very strong position to attract new clients,’ she says. ‘This type of integrated service will be good for all parts of the business.’
Part of the new regime requires a higher minimum level of qualification to advise clients. In some cases, individuals can be qualified by a ‘statement of professional standing’, which can be awarded by a number of designated accredited bodies. Parsons says that RFP advisers are all at or above the new minimum Level 4 qualification, with the majority having achieved chartered status. ‘We have all been awarded our statement of professional standing and have a CPD programme in place to ensure that we maintain high standards,’ she says.
Sales or advice?
Pickford predicts that some financial advisory firms could struggle, particularly with cashflow, if they have not got their business model right. But again this will be an opportunity for accountancy firms to grow their services. ‘One of the challenges for firms will be to ask if they are knowledgeable sales people or professional advisers,’ says Pickford. ‘There is a difference. You need to value your knowledge and not give that advice away for free.’
One area where accountancy firms need to be careful is if they don’t have their own wealth management services and refer clients to external advisers. If the adviser is classified under the new regime as independent, that’s fine, but if the adviser is classified as restricted, firms will need to be sure that the adviser is suitable for a client referral.
Philip Smith, journalist