 The RDR deadline is creeping ever closer and financial services providers should act fast to put their products on platforms to gain early competitive advantage, says Tony Collins, chairman of OPAL.
You would have to be living on another planet not to know that we are now entering the final crucial leg of the race towards implementation of the Retail Distribution Review (RDR). From 1st January 2013 the sales-driven commission model in the financial services sector will cease to exist and all eyes are on the industry, with observers curious to see how financial advisers and product providers will adapt their offering to this new model. Given the direct impact of the removal of commission, the spotlight has been heavily focused on changes that need to be made in customer service. However, the ripples will have a far-reaching effect on the very nature of product demand, with time fast running out for providers to complete their preparations.
Despite initial scepticism about the RDR, the financial services industry is starting to identify the opportunities arising for firms seeking to gain a competitive edge in the market. However, this begs the question, just where can providers differentiate and incentivise their product offering for maximum advantage? With commission expected to be replaced with new service charges from 2013, many consumers and investors will be keen to keep these fees to a minimum. There is a strong consensus that the RDR will signal a dramatic shift from active to passive investment patterns as many consumers will opt to manage their own funds to avoid the new service charges. Platforms are already an attractive option for advisers and investors alike due to their flexibility and pricing transparency. Platforms, or so-called ‘fund supermarkets’, offer product providers a means of distributing their products in a cost and time-effective manner as well as providing back-office administrative services. Getting financial products ready for platforms in the post-RDR world is one key area where providers are failing to act quickly enough, with the opportunity for a head start there for the taking.
Financial product providers have recognised the promising future for platform products and have been expressing significant interest in developing platform-friendly products in the build-up to the RDR deadline. However, many have stood on the sidelines, watching and waiting to see exactly how the new marketplace is being defined. Now the onus is heavily on these companies to gain a competitive advantage by delivering these products and getting them on platforms in the very limited time we have left before implementation.
Although there a very few months left until the deadline, it is perfectly possible to develop these new ‘platform products’ and take them to market via straight-through processing but at this late stage, with such a tight timescale, outsourcing to a third party is the only feasible way to get it done in the few months remaining. By delegating the majority of the development process involved in creating these new products and propositions, financial services firms then have both the time and the resources available to concentrate on the fundamentals of delivering the best possible service. They can channel their focus into improving service and building stronger relations with their customers – the most major RDR concern. In addition to buying time, outsourcing the technology and product innovation areas of the business allows providers to take full advantage of the specialist expertise third parties can offer as well as driving down overall costs and improving efficiency.
The benefits of outsourcing are not strictly restricted to the product areas of business; tapping into bespoke technologies can also reap great rewards on the service front by improving essential back-office functions. Providers of platform products will need to make sure that the quality of services matches the standard of their product offering. Third parties have access to technologies that make it quick and easy to carry out complementary tasks such as product distribution, marketing and client communications.
Time is very much of the essence – those who move quickly will reap the benefits of having offerings ready to take advantage of the new flow of money that the RDR will create. Most will agree that products suitable for platforms have a strong part to play in investment after 31st December 2012. However, with such little time left, firms should be asking themselves the pressing question: do we have the resources in place to have everything ready to launch by implementation? If the answer is no, it is vital to remember the role a third party can play, with outsourcing being the only real practical way to develop and launch products of a high standard in time, relieving some pressure from the busy months to come.
www.opal-uk.com
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