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6 steps you need to take to getting “RDR ready”

The FSB’s Retail Distribution Review (RDR) is just around the corner and firms need to be thinking about getting ready.

The UK RDR process started with consultation in 2006, fully six years before implementation in 2012. Whilst the process will inevitably be a bit different in South Africa, the direction of travel is fundamentally the same, and if anything, the timescales appear to be significantly shorter. Some of the RDR principles have already started.

Firms need to ensure they are ready, and the time it takes to make the transition will depend on the firm, but if previous experience is anything to go by, these things still take time.

In these situations, the early adopters advance the quickest, and I am reminded of the famous quote attributed to Darwin “It’s not the strongest of the species that survives, but the one most adaptable to change.”And this change is quite a big one.

The headline is about making the move from getting paid commission by product providers to getting paid fees by clients, but there’s a bit more to it than that.

The key issues are:

  • Creating a  profitable business structure
  • Building your own ‘product’ and understanding how to market and deliver it
  • Finding and managing the right clients
  • Understanding how to position different conversations with new and existing clients

In this post, I want to provide an overview of what we see as the six steps that firms need to take to get themselves “RDR Ready.” We think they need to happen in order.

1. Understanding who you have in your business and defining your ideal client profile

The industry has taught financial advisers to prospect for anyone with a pulse. It used to be a numbers game, and many firms have ended up with a diverse range of customers and clients, some of whom are profitable and some of
whom are unprofitable. Some we have great relationships with and some we may have sold something to once, and never seen since.

It’s not just financial advisers that face this challenge. Almost all businesses are having to be a bit smarter about who they work with. You need to understand who your ideal clients are and what makes them ideal, because you
need to understand the problems that they will pay you to solve. You also need to make a plan for what you will do about those clients that are less than ideal.

2. Understanding what people want and designing a proposition to meet it

We are going to need to be clear about the value we add to clients, and be confident when answering the client’s question “What do I get for my money?” Clients have never had the visibility they will get after RDR and it’s quite likely that the press and media will be persuading clients to ask the questions about value.

You may think your services are highly valuable (and they are) but can you package them in a way that convinces your client, and persuades them to willingly pay for those services? It helps when you know why your ideal client is ideal and what they want.

3.  The move to adviser charging

We need to find a way to price our proposition(s). Historically, the price has been set by the industry, but now the price will be set by advice firms. Will your clients pay what you want to charge in order to be profitable? Will you be able to make a profit? Do you even know what it costs you to deliver your service? Financial advice firms are a diverse bunch, and there are lots of pricing strategies to consider. You can’t price your services though, until you know what you have built, for whom, and what it costs to deliver it.

4. Positioning your services to new prospects

The first meeting engagement process and conversation is a crucial point to getting consistent buy-in from clients and ensuring their future expectations are managed and met.

Now you’ve created a proposition, you’ll need to articulate it in a compelling way, so that prospects perceive it to be the value it genuinely represents. You need to manage their expectations and communicate your service and price confidently. That takes time and practice. How will you have those conversations?

5. Developing your regular planning service

Generating regular revenue means delivering ongoing value. Forget ‘passive’ income. There’s nothing passive about having to continually deliver value. To ensure you continue getting paid, you need to continue delivering value. The key point for this is your regular planning or review service, which for most clients will probably involve an annual meeting and some touch points in between.

If you can’t continue to deliver value, then clients will have the option to switch off your fees. How are you going to design your ongoing service to prevent this from happening?

6. Re-positioning your existing client relationships

No, we haven’t forgotten about your existing clients. You need to develop an effective strategy that will take your existing client relationships on the RDR journey with you. How do you ensure that you protect your existing profitable relationships, your revenue stream and the value that you have created in your business? And what do you say to those clients that are not profitable?

You don’t want your existing clients to find out about RDR from anyone other than you, and that conversation needs to take place from a position of confidence.

There are plenty of other things to think about along the RDR journey, but the first phase in surviving the changes is to make sure that your business is still in one piece and is fit for the future.

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