In a survey from Investec, 58% of surveyed advisers said they believe some advisers will miss the deadline due to a fear of losing clients and revenue, while 59% cited a failure to change business model.
Nearly half said IFA administrative failures will lead such advisers to miss the deadline, while a third said they believed some advisers are waiting for providers to stop trail commission altogether before making the transition.
The Financial Conduct Authority’s ‘sunset clause’ will ban platform cash rebates from April 2014, while all legacy business must also move away from rebates after a further two-year grace period ending in April 2016.
'Widespread doubt'
Investec’s survey also shows that, since the introduction of the Retail Distribution Review, IFAs have seen an average of 61% of their commission-based income shift towards fee-based revenues.
However, it also found that 15% of advisers have so far moved just one quarter of their business, while 28% still have half or more to transfer.
Head of intermediary services at Investec Wealth & Investment, Mark Stevens, said there is “widespread doubt” over IFAs’ ability to make the transition to a fee based model in time.
He added that the change would be a “formidable” task for those who have yet to transfer.
“Faced with the changes required by RDR, advisers have increasingly outsourced client portfolios to a discretionary manager,” he said. “We have seen a sustained increase in both the quality and quantity of our DFM partnerships and believe this trend will continue, driven by the demand from firms that still face having to make fundamental changes to their business models.”
Dean Mullaly, senior partner, IFA, UK and International, at Mark Dean Wealth Management, said advisors with “customers rather than clients” have had the greatest difficulty in transferring models.
“I always feel that customers are people you sell something to on a one off basis, but clients are those that you work with over the longer term to help and guide them towards achieving their goals and aspirations.
“If an adviser goes back to a client to get a firm completed where he or she is going to be receiving an ongoing adviser fee instead of the trail commission that is about to be switched off, then the client is surely going to be asking themselves ‘what do I get out of this’”.
He added that, in this circumstance, the client would likely refuse sanctioning any further payments to the adviser.
“Also, the client has the right to cancel an ongoing adviser fee at any time, as it’s a regulatory requirement that the adviser has to document in writing to the client,” he added.
Client re-engagement
Similarly, Anthony Villis, partner at First Wealth, said any successful shift from a commission-based transactional model to a fee-based model requires client “re-engagement”.
“For many IFAs, the process would have begun two or three years before RDR, and may still be continuing to this day,” he added.
However, he said he felt that, while most IFAs will by now have a RDR-compliant service and fee model, some clients may have decided against it, and would therefore still fall under current legacy trail arrangements.
“After such a significant industry change, it is entirely understandable that some clients will choose to do their own thing,” he added. “This isn’t IFAs being unprepared, it is just the reality of the situation; the sunset clause is a further line in the sand for fee-based advice to flourish.
Jeremy Woodley, sales and marketing director at The Fry Group, said he felt the sunset clause would benefit the industry by forcing “one man band” IFA firms to update and ensure their compliance, while doubting its, potentially overblown, negative effects.
“The sunset clause only applies to those on a platform; nothing else is affected,” he said. “In the run up to RDR there was talk about advisers disappearing from the industry and that did not happen; I think this will largely be the same.
“There is no way that the platforms will want to be seen as the bad guys, and, as such, they will make it easy for those who need to update their business,” he added.
In a July survey conducted by Sprint Enterprise Technology, 66% of wealth managers said their biggest concern in client reporting following RDR was a lack of integration between systems used to gather data needed to create the reports.
