Get in Shape for the Big Switch Off
The sunset clause for trail commission is possibly the final act of the Retail Distribution Review's (RDR) aim to get the advice sector on to a more professional footing. We know that from April 2016 trail commission from legacy business tied up on platforms will be switched off and advisers will lose this recurring income. So how are IFAs shaping up and what work is left to do?
There's little doubt that for many advisers the switch off will impact profitability - how much will depend on a number of factors, including how long ago a firm's fee model was introduced. Those firms that were late in converting from commission to a fee structure will feel the pain of any loss of recurring income more acutely. Another factor will be the level of work that has been put into shoring up any financial gaps as a result of the loss of trail commission on legacy assets.
However, with only 12 months to go and much of the trail commission being turned off before the end of 2015, advisory firms don't have much time to develop new income streams and come up with a realistic charging structure that takes into account any additional lines of business. Justifying your fees will also involve coming up with a strategy to articulate plans to clients in a way that engages and differentiates your services from the competition enough for your clients to want to stay and pay.
This is particularly important in the light of new online developments that are looking attractive alternatives for even the more traditional advice sector client. It will no doubt involve taking a long hard look at your client base and ring fencing those clients most likely to conduct business with you in the future, while shedding those clients who are unlikely to engage with your fee-paying services.
Undoubtedly, there will be advisory firms that will struggle financially to transition ahead of April 2016, as well as those firms or advisers who are heading towards retirement and are finding the new regulatory regime too tough and costly. For those considering the exit route, it will mean turning attention to getting the business in shape in order to maximise any sale potential.
This needs to be done sooner rather than later. If you wait until 2016, you may find you have dropped from the high value sales floor down to the bargain bucket basement.