Some product providers questioned the results.
The Defaqto findings were based on online research conducted in March of some 161 advisers, who were asked about their attitudes and predicted behaviour, once the retail distribution review (RDR) regulations take effect on 1 Jan.
In addition to finding that these advisers expected to write less tax-wrapped investment business beginning next year, Defaqto also found that the advisers believed the share of their business that non-tax wrapped investments would account for would rise after RDR kicked in to 20% from 16% (see table, below).
And, while retirement income is expected to play a lesser role from next year – with an anticipated fall from 14% to 6% of business – employer pensions are likely to experience the greatest increase in significance for advice firms (growing from 6% to 16% of business undertaken), the Defaqto research reveals.
Fraser Donaldson, Defaqto’s Insight Analyst for funds, said the research showed “a potential shift in the type of business that advisers expect to focus on in the new distribution era”.
“Whichever product mix or advice proposition a firm chooses to offer post-2012, it is clear that the RDR’s rules will demand a new standard of advice, with unbiased and unrestricted being centrally important – and access to robust and whole of market research will be at the heart of meeting this requirement,” Donaldson added.
Defaqto is looking to help the advisory industry prepare for RDR, with what it calls “the RDR Zone” on its website.
What influence commission?
Some life industry officials and technical advisers who specialise in tax wrapped investments, such as offshore bonds, questioned the Defaqto results, arguing that they suggested that advisers were more susceptible to commissions and the opacity provided by the product and marketing structure, in the pre-RDR world, than these product providers believed was the norm.
In other words, they said, if the advisers who participated in the survey were being honest in saying that tax-wrapped products would fall as a percentage of their business to 13% from 21%, they were as much as saying that their own pre-RDR advice was more commission- rather than client-need led than many people realised – with implications for other markets that have yet to abolish commissions.
Natalie Hall, Royal London 360 director of marketing, was among those who were skeptical of the degree of change the Defaqto data foresaw.“I can’t see why clent planning needs would alter just because of RDR,” she said.
“ If a client requires IHT planning then they require it, regardless of when the advice is given.”
Gerry Brown, technical manager for Prudential, said he questioned how anyone, including advisers, could know the investment needs of the UK’s public next year, “in advance of carrying out the usual factfinds and research” on clients as they came in search of advice as their need for such advice arose.
“The same basic planning and investment principles will apply post-RDR as applied pre-RDR, [which include identifying] the client’s financial needs and devising a plan to meet those needs," he said.
“The way in which the adviser is remunerated shouldn’t impact on the planning and on the products used to meet client needs.”
At Standard Life, head of international technical insight Julie Hutchison said that, assuming the term “tax-wrapped investments” included investment bonds, these “are becoming a more normal part of the retirement funding conversation, and that will continue post-RDR”.
|
Area of business
|
Proportion of business Pre RDR implementation
|
Proportion of business Post RDR
|
|
Individual pensions
|
23%
|
21%
|
|
Employer pensions
|
6%
|
16%
|
|
Retirement income
|
14%
|
6%
|
|
Tax wrapped investments (excluding pensions and retirement income business)
|
21%
|
13%
|
|
Non-tax wrapped investments
|
16%
|
20%
|
|
Health insurance (Income Protection, Critical Illness, Private Medical Insurance)
|
5%
|
7%
|
|
Life assurance
|
13%
|
14%
|
Source: Defaqto
