Advisers will be influenced by how RDR rules affect their business when selecting platforms, says expert

Out-Law News | 05 Dec 2012 | 3:24 pm | 3 min. read

Financial advisers' choice of platforms will be influenced mainly by whether they provide advice on an independent or restricted basis following implementation of the Retail Distribution Review (RDR) rules, an expert has said.

Financial services law expert Bruno Geiringer of Pinsent Masons, the law firm behind, said that advisers will also decide which platforms to use in line with the kind of clients they have and their needs.

"Advisers are now coming to grips with whether they are going 'restricted' or 'independent' post-RDR," Geiringer said. "If they are going to be or stay 'independent' post-RDR, they know they have to step up to meet the new standards required of them. It is clear that the wider 'reach' of a platform will be crucial to ensure advisers comply with the high standards expected of them to undertake a comprehensive review of the market to find the right solution to a client’s financial needs."

"Many adviser firms must have systems reliability and access to a wide range of products from the platform to enable these standards to be met," the expert added. "Advisers have generally concluded that no one platform achieves the standards alone and so, two are usually adopted to minimise having to go off platform to execute their advice."

"As platforms are now revealing their new unbundled charging rates and the facilitation services they will make available, advisers will naturally look to use platforms that preserve their cash flow, offer great service and fit best with their client base and target audience," he said.

Geiringer was commenting after insurance firm Aviva said that the results of a survey of 270 advisers that it conducted in September showed that 34% were considering switching their main platform provider in the next year.

The insurance company also said its survey revealed that 11% of firms that employ more than 25 advisers will "definitely" switch their main platform in the next 12 months. Of those larger firms, a further 26% said that they were contemplating switching provider, whilst 3% of sole traders said they would definitely switch, with a further 28% considering it, according to Aviva.

"Of those advisers who say they are definitely changing platform, cost and investment scope are the most cited reasons for making the switch," Aviva said. "In fact, choice of funds under management is the second most influential factor for selecting a platform, mentioned by about half of respondents."

The cost of using a platform is less of a consideration for advisers when deciding which platform to initially select, the firm said. Just 7% of survey respondents cited cost as being a factor in the selection process, whilst 70% said that the "functionality of online services" was an influencing factor, it added.

Nearly half (49%) of the advisers said the choice of funds available had influenced their selection, with 42% also citing platforms' research capabilities, 39% citing compliance and risk management support, and 36% citing integration with back office systems, as reasons for their choice.

"Sole traders place greater emphasis on research capabilities, compliance and risk management support and the brand of the platform," Aviva said. "Respondents from large firms point to functionality of online services and integration with back office systems."

Andy Beswick, intermediary director at Aviva, said: "It’s unlikely a single platform will meet the needs for all clients or all advisers, providers will therefore need to be clear about what they stand for and back this up with appropriate propositions."

Under the RDR rules, outlined by the Financial Services Authority (FSA) and effective from the end of this year, firms advising on retail investment products must clearly describe their services as either "independent" or "restricted". This declaration must be provided to client investors in writing in good time before they provide advice services.

Both independent and restricted advisers are generally prohibited from receiving payment for those services by anyone other than their clients. The FSA has introduced these adviser charging rules after taking issue with the often complex nature of the payment models that exist in the retail investment market.

It wants the arrangements for the payment of services to be easier for consumers to understand and said that it wants to eliminate bias in the market which it said can exist where, for example, advisers are paid commission by financial product providers in circumstances where they recommend that their client invest in a particular product.

Generally, IFAs will be required to consider all available products and providers in the market before making a personal unbiased and unrestricted recommendation to clients on what to invest in. Restricted advisers will legitimately be able to offer advice based on a smaller list of products or providers, such as from a single source, providing they are up front about this with clients.

However, both IFA and restricted advisers will be bound by the adviser charging rules other than in cases where restricted advisers can be said to be offering "basic advice". In those circumstances restricted advisers could legitimately obtain fees, commission or other benefits from product providers or others.

The FSA has proposed separate rules specific to platforms that now look unlikely to be introduced until 2014. The regulator also wants platforms to be banned from receiving payments from product providers and instead wants consumers to pay to use platforms. It has also said that it will ban product providers from paying cash rebates to advised clients', including through their platform accounts, although it has indicated its intention to allow unit rebating.

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