The retail investment market has been a lucrative space for many years, however over the last decade it has had its fair share of scandals. The key area of concern currently under scrutiny is the delivery of financial advice and the subsequent sale of financial products. With the current approach, financial advisers receive commissions on products provided to clients – a framework that can introduce a bias to the financial advice which is given. Product providers that offer advisors attractive commissions get favoured, very often steering advisors away from keeping clients’ interests at heart.

This commission based approach has often resulted in partial recommendations being made while fees that are paid to advisors are not quite transparent. Public trust and consumer confidence has deteriorated significantly bringing disrepute and stagnation to this market space.

What is the mandate?

The new industry-wide legislation, the Retail Distribution Review (RDR), is being driven by the FCA. Its core tenets are to raise the professional standards of firms that dispense advice, reduce conflict of interests around remuneration and to encourage transparency and disclosure of the types of services being provided and paid for by a client. The RDR was finalised on 31 December 2012 and has the following implications from 2013 onwards:

• Adherence to a code of ethics and professional standards: One of the core requirements is that advisors are expected to hold appropriate qualifications and a Statement of Professional Standing from an accredited body. The FCA will maintain and enforce these standards.
• Transparency in adviser remuneration: A set of rules will be established to help increase consumer confidence that the advice received is not biased by commission. The consumer and the advisor will agree on a fee and it will not be determined by a financial product provider. Advisors and wealth managers are expected to have a charging structure with applicable fees/charges (based on the type of service offered) to be disclosed to clients upfront. Charges can be hourly, fixed or dependent on certain levels of service.
• Independent advice that is fair, clear and comprehensive: The assessment of a variety of investment options should be made distinct from Restricted Advice which is tailored towards a limited set of product providers.  The intent of this requirement is to ensure that advice is genuinely independent with sufficient rigor and clients are clearly notified about the nature of the advice being given.

What are the implications?

It is a brave new world for IFAs, Advisory Wealth Managers and Bancassurance. RDR cuts through the business model with an impact ranging from market positioning to technology deployment.

The key considerations which need to be made are highlighted as follows:

• There is greater competitive pressure on margins as a result of the expected transparency of fee structures. Wealth managers and IFAs can approach this challenge by revisiting their client segmentation strategy. CRM systems will become a strategic tool to support the initial and on-going partitioning and prioritisation of a client base using internal and external data. This will help inform the charging mechanisms that will be devised to suit target client profiles.
• A pressing need exists to demonstrate that fees are directly mapped to service levels as opposed to a blanket annual remuneration for services rendered.
• For those going the independent route, they will need to maintain knowledge of a broad scope of products and a product catalogue. This will need to reflect the most up-to-date offerings.
• There is concern that the market is not ready to migrate to a fee-based advice world as opposed to the ‘free’ model driven by commissions. Robust processes that support high service levels and client intimacy are critical here.
• There will be an increase in cost and complexity of compliance. This will be as a result of training, acquisition of qualifications, accreditation and reporting requirements. Smaller IFAs might struggle to continue within the market forcing them to exit or merge with others.
• Adjusting the business’ operating model to introduce efficiencies that take advantage of the post-RDR environment is inescapable. Future supporting processes and technologies will need to be understood and the appropriate projects kicked off. Once a future operating model has been clearly identified, the appropriate range of technologies can be examined and acquired as necessary.

Does it present any opportunities?

The on-going commentary within RDR has largely focused on the flaws and its undesirable impact. Of course this is natural for any form of widespread change. At BSG we try to steer attention to what benefits can be reaped and maximised in the midst of change while looking for a win-win outcome. Lets’ consider the following:

• Service optimization and outsourcing. It’s important for firms to understand where they offer added value. Once this core business area has been identified a business can outsource less critical aspects. For example an IFA can choose to outsource money management and the investment process in order to own and manage client relationships with high service levels that are innovative and intimate.
• Rise of technologies that drive lower-touch high-quality advice. New technology developments hold out realistic opportunities to streamline even the most complex advice processes and promote greater self-selection by clients. ‘Real time’ internet interactions, instant messaging and face-to-face online alternatives can be used to remove the need for direct contact. At the same time, clients are increasingly willing to use powerful online servicing tools to self-manage their own holdings (whereas they would previously have referred these changes to their advisor).
• Increased trust and willingness to pay. Improved perception of the industry and the quality of the advice being given can potentially attract increased up-front fees akin to the legal and accounting sector which would allow players to maximise profits.

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At the outset of every engagement, we spend time architecting the project to ensure that there is alignment between the organisation’s strategy, the proposed deliverable of the project and the approach to be adopted. Over the years, we’ve seen many, uhm, less than optimal practices across the industry. We decided to write them up in a “cheat sheet” for project architects.

Project architecting for anti-progress

Make roles and responsibilities unclear. In fact, why even consider them at all? Just assign people to the project and hope that they will get on with it. This way, the real “diamonds in the rough” will get a chance to shine. It’s Darwinism, project style.

Make your documentation as long as possible. Long documents are proof that you’ve consulted widely and thought hard. Stakeholders really appreciate them because they get a chance to be sure that every single conceivable exception, no matter how unlikely, has been considered. They also look really impressive on the desk. Aim for at least 250 pages (excluding models, these should be in a separate appendix).

Ensure that there are dozens of people engaged in review cycles. Surely it is better to get insight from everybody in the organisation? And customers. Not to mention suppliers and regulators. If you research and review requirements with a massive stakeholder group then you’re sure to be able to deliver a fantastically thick requirements document.

Everyone needs to agree on everything before progressing any single decision. This is a project, not an autocratic government. It needs to be setup so that every decision is consensus driven across a wide stakeholder group. Especially the little decisions, those are most important. Documenting the never-ending email chains as decisions progress provides great content for your appendices.

Encourage teams to operate as functional silos during delivery. Talking to each other only slows things down and gives people the illusion of being involved. It’s much better to ensure that different parts of the project team are minutely focused on their own work at the expense of anything else. This will allow you to write documentation much more quickly.

Waterfall. Only. Forever. Thinking through different delivery approaches will only slow down the project. Why waste time planning how to do something when you could be having meetings and writing documents? Those new fangled approaches are only a fad anyway, everyone knows the space programme / banking platform / other important thing was built using a waterfall approach.

Keep it big. Breaking up the scope into small manageable chunks only demonstrates an inability to be a big picture thinker. Also, you never know whether you’ll get budget again so be sure to use it all in design and delivery. With all the analysis you’re doing, it’s almost certain that your design will be totally accurate.

Make change within the project complex. Don’t let stakeholders fool you with changes to business priority and process. The point of the waterfall approach is to draw a line in the sand. There’s no point in a line if you don’t police it. Make it exceptionally difficult to cross that line. This will demonstrate how serious you are about meeting the project ambitions and win you respect across your stakeholder community.

Paper, paper and more paper. Don’t be fooled by tools that allow either better management of requirements throughout the project or collaborative working environments. These too are a fad. There are many detailed spreadsheet templates that will allow you to track traceability across a complex design making for value-adding work on the project team. Paper will never go out of fashion.

Make workshops cover as much ground as possible. Your stakeholders are busy. And they need some time to be available to review your thoroughly written documents. Be sure to make workshops cover every angle – the more you can cram into a single whiteboard session, the better. Don’t worry about focusing on the details, stakeholders often get this type of stuff confused anyway. It’s your job to address this as you write out an activity diagram, use case and associated notation for every single process.

Measuring benefits is like counting up your old Italian Lira. Benefits only begin accruing after the project is complete. By then, you should be focused on some other important project or change. You want to be a forward thinker, not stuck in the past.

Do you have any more rules to architect projects for anti-progress? Let us know in the comments.

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