The UK government's Financial Services Authority's (FSA) Retail Distribution Review (RDR) reforms came into effect at the end of 2012, after six years of consultation and discussion between the government and industry. The RDR has been designed to reform retail investment advice rendered in the UK, and has triggered a review of the remuneration arrangements so as to usher in a competitive environment that works to the advantage of insurance consumers.
There are many changes that the RDR will usher into the adviser environment. For instance, the removal of commission and allocation rates less than or equal to 100% will make pricing a key factor of product sales. Such a scenario will be a sharp contrast to the pre-RDR period wherein the level of commission paid out largely determined the sale of a given product. Advisers will be expected to raise their professionalism and provide high quality services at competitive rates. They must devise appropriate marketing strategies to tap different consumer groups.
Technology can help advisers find their feet and prosper in this new environment. In adopting a 'fee-based advice' model, advisers must draw up a menu of services with different levels of advice and the corresponding pricing structures that cater to the needs of different customers. This can be effectively done with the usage of business analytics. Product providers and advisers will also profit from employing Customer Relation Management (CRM) solutions, mobile technologies and social media. Besides, digital marketing can be effectively used to gather intelligence on customer lifestyle, preferences, buying patterns, etc., eventually leading to development of strategies for selling, cross-selling and up-selling.
To make these channels more effective for distribution, advisers will have to invest in technology and IT infrastructure like highly responsive portals with rich user experience that cater to different channels. Advisers will have to prioritize the most profitable channels and build scalable infrastructure, frameworks and processes for those channels which can be reused for multichannel integration. At a broader level, product providers should use technology for competitive pricing of products. The pricing should be transparent – separating distribution charges and cost of advice from the actual product price.
Many advisers are already alive to the benefits that technology can bring in the new RDR regime. A recent study by Aviva plc showed that 60% of advisers have adopted new technology recently, ranging from new back office or client relationship management (CRM) systems, to platforms and software from networks or product providers. 20% agreed that they can improve business efficiency with an increased use of technology —the most cited way to bring about changes.
Though the post-RDR environment will be challenging with advisers and customers learning to negotiate their way and understanding the implications of these new regulations, it brings in transparency and consumer centricity. Technology can help ease the transition to a great extent, and help advisers smoothly meet the needs of the new regulatory landscape.