The Retail Distribution Review has created more debate and consternation than almost any other proposal to emanate from the Financial Services Authority over recent years. This is largely because change for most people is unnerving. It is often perceived as expensive and whenever change is proposed people look to protect their ‘patch’.
There are two broad issues around the RDR. Many intermediary organisations fear it would lower knowledge standards and lead to more advisers.
This creates the perception that they will share a smaller portion of the cake. What is ignored by most advisers, because it is an unknown, is the real opportunity from an enlarged market.
Secondly, historically change has required investment, whether in training, further qualifications or technology and this has been perceived as expensive, often with little regard for the benefits.
What has received little attention so far is that lenders could be one of the greatest contributors to and beneficiaries of the RDR, for the simple reason that they have contact with most of the population regardless of their wealth.
Furthermore, as all lenders know, borrowing and savings needs provided the bedrock for most people’s finances. They were also traditionally the catalyst for a broader financial review whenever these needs changed.
Many readers might remember the halcyon days when the branch was, for many customers, the first and only stop for their financial services.
The industry has moved on a long way since then, mostly for the better, but with one exception. In the move towards greater sector knowledge by advisers, the ability to provide holistic advice cost effectively, and meeting the regulatory hurdles for a spectrum of sectors, is beyond all but the super-human consultant.
The result is that a swathe of the general public is effectively left out in the cold for one or more of their financial requirements.
It is here that the opportunity for lenders lies in the RDR. The ability to offer two-tier advice means that the generic advice that most people need can be offered in, or supported by, an environment that they know and trust – the branch.
The failures of old, expensive front-loaded products and patchy compliance have all been largely rectified. Technology has also come a long way since the ‘man from the Pru’ and now modern point of sale technology configur -ed with the appropriate rules and business processes allows an adviser armed with a PC to provide compliant and holistic advice across a range of products.
Such technology will easily cope with what is currently proposed in the RDR, and certainly enough to ensure that customers have their basic savings, investment, pension, protection and mortgage needs sorted.
The more progressive banks and building societies have already been exploring options for providing holistic advice. One lender we have worked with, for example, has over recent years retained its branch-based distribution and used it as a backdrop to a multi-channel distribution strategy. This lender’s customers are free to choose how they transact with it. The result is that many opt for multiple routes, depending on the nature of the transaction.
Customers receive a consistent look and feel, regardless of whether they transact their business through a branch, telephone banking centre, intermediated sale, the internet or through a field-based financial planning consultant.
The important point is that, for many customers, the branch is still at the heart of their financial transactions.
On the issue of the dumbing down of advice, I believe that the opposite will happen as many people who have specific needs currently don’t have them identified.
Good examples of where specialist advisers are brought in to support broader-based financial provision can be seen in a variety of banking operations – for example, HSBC’s offer of long-term care via Nursing Homes Fees Agency’s advisers, and equity release advice via a relationship with In Retirement Services.
From a technology perspective, the logistics of providing two-tier advice is simple. Complex decision trees can be developed to meet most general financial services needs and, where the customer falls outside of these needs, a referral process to a specialist adviser can be fully automated.
This is an important point when considering the cost of providing advice as a technology-led approach is much more cost-effective.
Branch technology may require updating but this is far from onerous or expensive. The biggest single problem is that most branch-based systems were never intended to facilitate mobile working, i.e. advisers based in the branch and with the ability to operate in the field. Modern laptop-based applications utilising mobile technologies, such as Microsoft .NET, are few and far between, but not expensive to install.
The other historic issue was that integration across product lines or legacy systems often meant ripping out and starting anew.
These days modern point-of-sale systems can help orchestrate advice and sales processes across all product lines and business functions without the need for large changes in programs and costly replacement of existing systems.
The outcome of the RDR has the ability to fulfil both a social need as well as bring about the renaissance of branches.
No longer will the only options for lenders be to close, or invite a coffee chain to share the premises. Instead they can return to being the heart of face-to-face advice.