Getting ready for RDR - preparation checklists

Key information you need to know

• Financial advisers are required to achieve QCF Level 4 by 31 December 2012. Core knowledge is required in each of the 6 planning areas (Financial Services, Regulation and Ethics, Investment Principles & Risk, Personal Taxation, Pensions & Retirement Planning, Financial Protection, Financial Planning).
• Where a historic qualification is held (such as AFPC), this can be used in conjunction with CPD / qualification gap fill.
• Where Diploma / QCF Level 4 has already been achieved, any gaps in subject areas can be bridged by completing CPD.
• A good practice timeframe for completing qualification gap fill is mid 2012.
• Advisers must obtain the required qualifications / gap-fill before being able to apply for their Statement of Professional Standing (SPS). An SPS will be required in order to practice after RDR is implemented, and as applications will be high, advisers should apply in good time ? around mid 2012.

Checklist

You should consider and where appropriate complete the following:

• Advisers identify the professional qualifications they need to continue to practise post RDR.
• Advisers identify any required qualification gap fill.
• Advisers confirm that qualifications will be completed in time to apply for the Statement of Professional Standing (SPS).
• All advisers needing to do so complete the appropriate professional qualifications.
• Advisers complete any required qualification gap fill.
• Advisers establish plans to meet ongoing CPD requirements.
• Where required, support-staff have obtained any relevant appropriate qualifications.

Further reading

• To understand the qualification gaps they have, advisers should contact their exam provider. The CII gaps can be identified via the exam gap tool for PFS members (membership required to access this link).
• The latest acceptable qualification tables are available in appendix 4 of the FSA's Quarterly Paper No 27.
• The Scottish Widows Academy can help you identify which exams are required and also how we will support you in your professional qualifications journey www.scottishwidows.co.uk/academy.

Key information you need to know

• The FSA highlights within the RDR that how you treat your customers is just as important as having formal qualifications.
• Training & Competence schemes should be used to include keys skills and not just tick the compliance boxes.
• Ensure that all relevant staff within your firm (not just regulated advisers) adhere to the Approved Persons sourcebook, which sets out several high level principles, and descriptions of behaviour which, in the FSA's opinion, do not comply.
• All supervisors must be 'experienced' to be able to supervise and monitor regulated advisers. Firms should look to have checks in place to assess and monitor its supervision, and development plans for this range of skills and attributes.
• In the words of the regulator "a file check is not supervision." It is clear that they want to see supervisors out seeing what people actually do in practice and coaching performance.

Checklist

You should consider and where appropriate complete the following:

• Relevant staff can demonstrate that they have the key skills required for RDR.
• Relevant staff are trained and coached on how to effectively deliver your post RDR advice proposition (including role-playing exercises where appropriate).
• A comprehensive skills development programme has been considered for all staff, and implemented where required.
• The firms Training and Competence Scheme and sales process reflects the proposed new descriptions about "paying due regard to the interests of a customer", and causing "deliberate acts, omissions or business practices that could be reasonably expected to cause consumer detriment".
• Supervisors have the correct skills and expertise to supervise the firm's advisers, and have evidence available to demonstrate this.
• Supervisors are over-seeing the activity of advisers in practice and coaching performance.

Further reading

• Click here to view the FSA's consultation paper on Professionalism (CP10/14).
• Click here to view the FSA's final rules on Professionalism (PS11/01).
• Click here to view the FSA's consultation on Competence and ethics (CP10/12).

Key information you need to know

• All advisers must hold a Statement of Professional Standing (SPS) to be able to trade after R-Day.
• An SPS will provide independent verification that the adviser is qualified, has kept their knowledge up-to-date and follows a code of ethics.
• The SPS will be awarded by FSA-accredited bodies. Whilst these bodies are still to be formed, it is likely that many of the current professional bodies will apply.
• Unlike other professions, membership of a professional body will not be mandatory to obtain an SPS.
• The SPS will be supplied providing all of the criteria have been met:
  • Confirmation that the advisor's qualification(s) have been verified.
  • Confirmation that the advisor has signed an annual declaration that they have kept their knowledge up-to-date; and adhere to standards of ethical behaviour.
  • Confirmation of the Advisor's individual reference number as it appears on the FSA Register.
• Key issues to consider when deciding whether to join a Professional / Accrediting Body, and if so which one, are:
  • Do they offer value for money, not just the lowest cost?
  • Are they FSA approved?
  • Do they recognise qualifications with other examining bodies or only their own?
  • What is the Statement of Professional Standing application process?
  • Do they offer corporate discounts?
  • Is membership available on a group or individual basis?
  • Do they offer a letter / accreditation which can be put on business cards or in your terms of business letter?
  • What ongoing CPD support is available?
  • Do they have a local institute/support, or is it all centralised?
  • What online support is available?
  • What is the Statement of Professional Standing relicensing process?

Checklist

You should consider and where appropriate complete the following:

• All advisers have met the criteria for obtaining an SPS.
• Confirm which Accrediting Body should be used by advisers to obtain their SPS.
• Confirm that all advisers have applied for their SPS.
• Confirm that all advisers have obtained their SPS.

Further reading

• Click here to view the FSA's final rules on Professionalism (PS11/01).

Key information you need to know

• Membership of an appropriate accrediting body will help with the guidance around ongoing requirements to ensure the standards are being maintained. However, responsibility will sit with the individual.
• 35 hours of CPD must be completed annually, 21hrs of which should be structured with verifiable and measurable activities, and where possible include outputs.
• All of the ongoing requirements will need to be maintained to retain the SPS, such as adherence to standards of ethical conduct, as the SPS could otherwise be withdrawn.

Checklist

You should consider and where appropriate complete the following:

• All advisers confirm that they will understand their ongoing CPD requirements.
• A confirmed process is in place to meet the ongoing requirements for maintaining the SPS.

Further reading

• Click here to view the FSA's consultation paper on Professionalism (CP10/14).

Key information you need to know

• The degree of change that may arise from the Retail Distribution Review clearly depends on the current position of the business. For business owners, RDR provides an opportunity to review existing business plans in light of the changes required, and the likely impact on the operation and profitability of the business.
• Many adviser firms follow best practice by maintaining and regularly reviewing written down business and financial plans.
• The following checklist identifies key considerations when reviewing business plans.

Checklist

You should consider and where appropriate complete the following:

• Identify where the business stands against the rest of the market.
• Confirm and document the business success criteria ? including a clear timeline of what needs to be done, and by when.
• Assess the impact business transition will have on operating costs, revenue and profitability.
• Complete financial projections and identify the proportion of turnover (total income to the business) accounted for by recurring income.
• Confirm who in the business is responsible for RDR.
• Assess whether the business plans are realistic, given the aims, capacity and capability.
• Communicate business plans to all staff, in order to gain buy-in to the plans.
• Confirm the impact that RDR requirements will have on your future compliance regime.

Further reading

• Scottish Widows Business Consultancy aims to provide advisers with practical ways of enhancing and developing their business. It is based upon experience of running business planning exercises with over 600 IFAs. For more information see the Scottish Widows Adviser extranet, or speak to your usual Scottish Widows sales contact.

Key information you need to know

• RDR is causing many advice businesses to review the service they provide, how much they charge and who they prefer to do it for. The service and pricing proposition will be much easier to design if you are clear about your target clients and what they require from you.
• Major competitive advantage arises from the detailed knowledge you will develop around this group of clients ? this is hard for competitors to copy and gives you opportunities to be recognised and recommended as a specialist.

Checklist

You should consider and where appropriate complete the following:

• Identify and define your target market(s).
• Research the potential size of your chosen target market(s) to confirm they be sufficient to support your business plans.
• Decide whether to differentiate your advice proposition for different target markets.
• Define the services you will offer (for each different target market, if appropriate).
• Run a pilot of your post RDR advice and pricing proposition with your target market(s).
• Review your advice proposition following the pilot. Amend your proposition as needed, and re-pilot as necessary.
• Identify the cost of servicing your existing clients, segmented by your target markets (where relevant). Confirm (for each target market) whether you are able to service them profitably.
• Define the proposition for your existing clients.
• Confirm the approach for dealing with new and existing clients who are outside of your target market.

Further reading

• For information on evaluating your current position and how to profile your clients, read our report on identifying your post RDR target market.
• For information on defining your service proposition, and achieving consistency across advisers and clients, read our report on defining your service.
• For more information on how the Scottish Widows Retirement Account can help you transition to RDR at a pace that suits you, read our 'Making sense of the remuneration options' guide.

Key information you need to know

• One of the FSA?s main aims of the RDR is to make it simpler for clients to differentiate between the various types of advice offered by different firms.
• All firms will be required to disclose in writing to the client, prior to providing any advice, whether they will provide ?independent? or ?restricted? advice.
• Independent advice is advice that is unbiased, unrestricted and based on a comprehensive and fair analysis of the ?relevant market?. In general, relevant market will include all ?retail investment products?, which will extend beyond packaged products to include, for example:
  • Unregulated Collective Investment Schemes
  • All investments in Unit Trusts
  • Structured Investment Products
  • Exchange Traded Funds
  • Other investments that offer exposure to underlying financial assets, but in a packaged form, which modifies that exposure compared with direct holdings in the financial asset.
• Firms specialising in a particular market will be able to provide independent advice on that market so long as they consider all products capable of meeting the client?s need in that market and explain the scope of their services.
• Where the above requirements are not met, the adviser will be deemed to be providing restricted advice.
• Both independent and restricted advice will be subject to the same RDR qualification and Adviser Charging requirements
• Advisers can continue to use panels, but must be able to demonstrate clearly why it?s felt that a particular market, product or class of products, which has been excluded, is not suitable for their client?s needs. These panels should be regularly reviewed.

Checklist

You should consider and where appropriate complete the following:

• Confirm the types of advice you will offer post RDR ? Independent/Restricted and/or basic.
• Where relevant, confirm whether ?restricted? advice status is being introduced as an interim or long term position.
• Where applicable, assess how the business will demonstrate and maintain the more demanding requirements to meet post RDR environment requirements for Independence ? ?unbiased and unrestricted?. Ensure these requirements are reflected in your business processes.
• Confirm whether the scope of services offered will be restricted in order to reduce costs and risks (e.g. outsource investment management).
• Confirm the panel arrangements the business will operate post 2012.
• Confirm the 3rd party or in-house research services the business will require post 2012 to meet the new requirements of independent / restricted advice.
• Confirm if access to a non-advised proposition will be available for certain customers.
• Confirm whether external compliance support is required.
• Confirm which products have the right features and options to help the business transition to RDR.

Further reading

• FSA factsheet on independent & restricted advice.
• For more information on how the Scottish Widows Retirement Account can help you transition to RDR at a pace that suits you, read our 'Making sense of the remuneration options' guide.

Key information you need to know

• The price that you set for your advice services will need to provide good value for clients and profit for your business.
• You should aim for a coherent policy that can be applied consistently across all clients and by all advisers.
• The price that you charge should be considered separately from the way clients pay for their advice.
• The following five steps can help you make this important decision.
  • 1. Define your service.
  • 2. Structure your price.
  • 3. Work out the cost of your services and target margins.
  • 4. Review tax implications ? particularly VAT.
  • 5. Confirm your pricing policy.

Checklist

You should consider and where appropriate complete the following:

• Calculate your cost of writing and servicing business.
• Before setting your pricing policy, review existing systems, IT and eServices to see whether the cost of your service delivery can be reduced.
• Where required, confirm and document your plans to transition from commission to adviser charging and/or fee based.
• Confirm if you will differentiate your service and advice charges to reflect your target market(s), the cost of providing your service, and the client's ability to pay.
• Confirm on what basis clients will be charged.
• Confirm when you will collect charges.
• Confirm how you will collect charges.
• Assess how the transition to adviser charging will affect profitability.
• Assess whether the charges you have set will cover your costs plus profit.
• Assess whether any change in your charging mechanism will impact cash flow.
• Confirm any VAT implications of your changes to your charging structure.
• Make appropriate changes to your client engagement letter.
• Confirm that your pricing policy gives you a universal and consistent menu of charges.
• Assess whether the business will need a credit control function.

Further reading

• For a summary of the adviser charging rules, read our Guide to Adviser Charging.
• For information on defining your pricing policy, read our report on Agreeing the price you will charge.
• The ABI have produced a guidance note for determining the VAT liability of adviser remuneration.
• For more information on how the Scottish Widows Retirement Account can help you transition to RDR at a pace that suits you, read our 'Making sense of the remuneration options' guide.
• Adviserwise from Origo provide an eServices Planner that can help adviser firm business owners to understand the high level impact of using technology to deliver their service proposition, including the impact on:
  • Net Annual Profit.
  • Monthly cash flow.
  • Business Value.
  • Future Staff Capacity.

More information on the tool is available from Adviserwise.

Key information you need to know

• The changes introduced through RDR are likely to have a knock-on impact on the sales process and day to day operation of many adviser businesses. The following checklist identifies some of the potential issues.

Checklist

You should consider and where appropriate complete the following:

• Ensure a consistent sales process is in place so that similar customers receive similar outcomes across all advisers in the business.
• Develop and introduce Client Agreements.
• Review your client disclosure documents to reflect your new service proposition and price, and amend as required.
• Confirm whether the business will be in a position to meet the likely Capital Adequacy requirements as they are phased in.
• Assess the impact that business transition will have on operating costs, revenue and profitability.
• Review the existing book of business to ensure products offer the right mix of benefits to meet clients' ongoing and future needs, and that you will be able to service them profitably.
• Confirm whether the business will be able to meet the likely increases in PI and higher excess.
• Confirm the VAT implications likely as a result of RDR, ensuring that your understanding be justified and is applied consistently and universally.
• Establish a process to collect evidence for FSA reporting, including pre-RDR preparedness and post RDR monitoring.

Further reading

• The ABI have produced a guidance note for determining the VAT liability of adviser remuneration.

Key information you need to know

• Having finalised your post RDR service and price, you should review the processes and systems you use to ensure you can efficiently deliver the service consistently across all advisers and clients. You can achieve this using the following:
  • a standard fact finding process.
  • clear processes and disciplines in the back office.
  • a standard service agreement to explain the service clients will receive and how they will be charged.
  • clear definition of service standards.
  • a process for producing client review lists on a regular (monthly) basis and a system for monitoring the action taken.
  • a formal sign-off process for any circumstances that fall outside the normal frameworks.
• eServices can play an important role in supporting your advice process and the ongoing management of your customer relationships, and may offer improved efficiency. Consider how the following eServices are used in your processes:
  • eServices from product providers, for both new and existing business.
  • Back office systems whether it's provided by a Software Provider or it's your own system.
  • Best Advice Systems.
  • Industry Portals to give improved access to individual and comparison illustrations.

Checklist

You should consider and where appropriate complete the following:

• Decide the process and IT that you will need to efficiently deliver your service proposition.
• Review the organisation structure needed to deliver your service proposition, and implement any changes required.
• Review existing back office systems (including those bought-in) to ensure they are used to their full potential and can deliver your proposition , including description of services, disclosure of charges, and any restrictions.
• Review whether eServices can improve servicing efficiency.
• Where applicable, identify providers who offer the range of eServices that you now want.
• Confirm the extent, if any, that you will use Platforms and Wraps to deliver your service proposition.
• Review and confirm your use of platforms to ensure that it does not hinder your firm's requirement to meet the Independence rules. Document evidence to support your view.
• Where applicable, establish a process to go 'off platform' where it is not the most suitable option for clients.
• Confirm the panel arrangements the business will operate post 2012.
• Review product provider service standards for both new and existing clients to ensure that relevant providers deliver good service (higher level of service from providers will help reduce your servicing costs).
• Confirm the 3rd party or in-house research services the business will require post 2012 to meet the new requirements of independent / restricted advice.
• Audit the readiness of any 3rd party suppliers to deliver an RDR ready service in good time, with agreed appropriate financial penalties for service failures.

Further reading

• To find out how Scottish Widows eServices can help, see our Adviser extranet.
• Adviserwise from Origo provide an eServices Planner that can help adviser firm business owners to understand the high level impact of using technology to deliver their service proposition, including the impact on:
  • Net Annual Profit.
  • Monthly cash flow.
  • Business Value.
  • Future Staff Capacity

More information on the tool is available from Adviserwise.

• For more information on the FSA proposals for Platforms, Wraps and Fund Supermarkets, read our Guide to FSA's consultation on Platforms.
• Scottish Widows have been awarded five stars in the Financial Adviser Service Awards in both the Life & Pensions category and Investment category. For details see the Scottish Widows adviser extranet.

Key information you need to know

• You should ensure that you have the necessary material available to market your advice and services to your prospective and existing clients.
• Consider how you will market your services to each of your target markets in turn. Consider material such as client agreements, client services leaflet, and a client brochure to explain the services you offer and the added value you can provide.
• For any marketing campaigns that you run, consider first creating a campaign plan to map out the different communication objectives and activities. The logistics of any marketing campaign will vary with client numbers and client value. A campaign plan with realistic objectives and regular reviews can help maintain focus on the core target market for the campaign, whilst ensuring that you still communicate effectively with any secondary target markets.

Checklist

You should consider and where appropriate complete the following:

• Decide who you are marketing your service to (i.e. your target market(s)).
• Fully document the range of post RDR advice services you offer, split by target market where appropriate.
• Assess whether your services and pricing strategy are compatible with your chosen target markets.
• Create a clear menu of charges, properly costed and priced.
• Review your planned level of service to ensure that your proposed level of adviser charging is justified (initial and ongoing).
• Decide what marketing material you need to promote your service(s) to your target market(s), including to existing clients.
• Create, review and update a marketing 'campaign plan' for each promotion run.
• Review your website to ensure it clearly explains the services and advice on offer to prospective clients, and update as needed (taking into account your target market(s)).
• Review your website to ensure it gives prospective clients clear and easy ways to engage with you. Update it as required.
• Review all material to ensure clients will understand the choices they have and what you promise to deliver.
• Establish a robust and comprehensive client review process universally applied by all advisers and support staff.
• Confirm clear and consistent client satisfaction criteria for your business, to be applied by all.

Further reading

• Click here to see an example of a typical campaign plan.

Key information you need to know

• RDR provides an opportunity to review the jobs in the business, how people are rewarded and what recruitment or training and development will be needed. In many cases you will be able to confirm good practice or build further upon it.

Checklist

You should consider and where appropriate complete the following:

• Review how roles and responsibilities in the business will change post RDR.
• Review and update your people plan.
• Implement a comprehensive skills development programme for all staff.
• Review staffing requirements for you business and recruited as required.
• Training & competence scheme updated to reflect new roles, responsibilities, and professionalism requirements.
• Review and update the reward structure for all staff to ensure it encourages the right outcomes and behaviours for the business.

Further reading

• For information on reviewing roles & responsibilities, read our report on Agreeing post RDR roles and responsibilities.
• The Scottish Widows Academy is a one-stop shop for impartial guidance on the awarding bodies and qualifications available and can help you identify which exams are required and will support you in your professional qualifications journey.

Key information you need to know

• The FSA has established a working group on consultancy charging which is expected to provide guidance to the industry regarding the structure, collection and payment of consultancy charge payments. The working group is expected to report towards the end of Q1 2011.
• Consider the range of services you'll offer to employers and employees, and how the costs of these services (including any on-going costs) will be explained and justified to both groups. Services offered could include, for employers, advice on scheme type, provider selection, the contribution basis, ongoing scheme support and periodic reviews. For employees, services could include individual advice or guidance, fund selection and/or development of bespoke investment propositions, regular reviews and 'at retirement services'.
• The pensions reform legislation, due to be introduced in 2012, will have wide-ranging effects across every field of business. There is a lot to be gained by starting to prepare now: you?ll have time to analyse your client bank and ensure you can help your clients through the process and your clients will also have time to consider their plans and spread any financial impact over a few years.

Checklist

You should consider and where appropriate complete the following:

• Define the menu of services you will offer, split between employer and employee-related services.
• Confirm your menu of charges, and charging structures e.g. flat per member fee, or percentage of premiums, or tiered structure depending on employee contributions, timing of payments etc.
• Decide whether your charges will allow payment to be made by employer fee, by deduction from employer premiums, and/or from member funds.
• Decide how you will explain/justify the services you offer to employers and employees.
• Consider the degree of cross-subsidy of consultancy charges you will allow between employees, including initial membership and subsequent new entrants.
• Assess and confirm the impact that scheme leavers and transfers will have on your income stream.
• Consider whether to introduce a consultancy charging approach before 1st January 2013.
• Define your service proposition and price for existing schemes.

Further reading

• For more information on the main pensions reform changes, what they mean for employers and a step by step guide on how you can help your clients, read our Pension Reform Guide or see our Adviser Extranet.