It is hard to think of any element of RDR that will have a greater impact than the commission ban. Arguably this alone represents a more dramatic change than the entire 1987 regulatory regime. It is not surprising therefore that Paul Richards, the new head of Fidelity FundsNetwork, cites the delivery of this element of its proposition as the most significant part of the company’s whole RDR programme.
Richards is refreshingly candid in identifying that he initially believed the company was over engineering this solution. Whilst a fee service has existed on FundsNetwork for some time this was previously more aligned to the delivery of a nominated level of trail commission. The new service allows for payments of initial, ad hoc and recurring fees both fixed amount and ad valorem, with and without VAT, and that can be deducted from multiple products.
In practice providing a service which allows advisers to migrate slowly away from commission, continuing to receive traditional remuneration for investments previously sold whilst at the same time helping advisers adopt the new model for new advice, is, he says, being warmly received. Whilst stopping short of criticising other organisations he points out that “the rules permit more than many other providers are allowing”. The FundsNetwork view is that providing such a degree of flexibility to continue, where permitted, to take historic commissions as advisers transition to fees will allow firms greater ability to evolve into the new arrangements.
FundsNetwork is also quick to highlight that bundled charging will not disappear at the end of the year and looks to, at least, be with us until the end of 2013. The company has already begun to roll out some unbundled products, particularly ETF’s and a number of unbundled funds with Henderson. The current expectation is to have a full range of unbundled product by the middle of next year.
Looking further into the future over a three to five-year period he expects most platform business will be structured on an unbundled basis but he points out there are situations where bundled products can deliver consumer benefits.
Throughout 2012 the company has run a wide range of adviser events designed to provide practical support on transitioning propositions in the post-RDR world. Whilst many other organisations have focused on providing segmentation support to advisers, Richards believes advisers are in practice looking to be able to continue to provide a consistent approach to all clients.
Part of this process has included joint consulting sessions with Time 4 Advice and a further 30 events have recently started where Paul Kennedy, FundsNetwork’s taxation specialist explores in detail issues around Centralised Investment Propositions, the impact of taxation on advice and fees including the pros and cons of various different approaches.
A further area where FundsNetwork have made a significant investment is in its capability to allow advisers a wide range of flexibility and automation when it comes to the investment propositions they can offer via the platform. The firm argues that it needs to provide advisers with the widest possible range of ways to help their clients with choosing the investment strategy that is right for them both in terms of cost of the funds and the cost of providing the appropriate service to the client.
Essentially these fall into four areas. Obviously the adviser can still select investments on an individual basis building each client’s portfolio as a bespoke exercise. Whilst such flexibility drove much of the original adoption of platforms, increasingly today FundsNetwork is finding firms looking for more structured solutions. The company runs its own range of risk rated funds, Navigator. They are not designed to be suitable for investors looking for either specifically low or high risk investments but rather the middle ground. FundsNetwork research suggests these segments account for the risk attitudes of nearly 90 per cent of investors.
Navigator has a built in risk profiling process and also includes a range of enhanced quarterly reporting tools which can be branded to reflect the adviser’s identity and delivered electronically to firms for onward transmission to their clients.
FundsNetwork’s recent experience has been that 39 per cent of advisers have now adopted model portfolios and that a further 11 per cent have embraced a third party Discretionary Fund Management approach. All of these need a capability to rebalance such arrangements on a regular basis hence they have built an online portfolio management centre to facilitate such activity. This enables both the adviser firm and third parties such as DFMs to access model portfolios within the FundsNetwork systems and to make adjustments as necessary.
The above all represents a very significant level of service delivery that has been achieved in the last 12 months. It would appear that the key foundations are now in place to meet the immediate RDR need although as the company have pointed out there is more work that will need to be done in the coming year once the FSA reach their final decision on the rebates issue.
Ian McKenna is director of the Finance & Technology Research Centre