Managing UK Retail Investment Compliance in the Post Retail Distribution Review Landscape (Strategic Focus)

Introduction

The Retail Distribution Review is set to bring a major overhaul of business practices in the UK's retail investment sector. The abolition of commission represents a major shift in business model and the need for higher professional standards will notably increase compliance costs. This report looks at business and IT strategies to support advisor charging and the compliance demands of the RDR.

Scope

The report looks at the UK retail investment sector, considering the impact of the RDR on both investment providers and distributors

Analysis of the RDR includes business and technology implications of move to adviser charging

Report explores technology implications of the RDR in supporting greater compliance management requirements, including managing training & competence

Highlights

Ovum estimates that the broader IT system change costs required will likely drive a total technology spend on supporting RDR for the retail investment sector will be near to £500m over the three years from 2010 to 2012.

KPI and other MI measures will be subject to change over time this means that it is no longer optimal to use highly defined or hard-coded applications for the automation of data collection and reporting. Systems need to deal with evolving measure requirements, with the ability to easily work with new measures or change existing ones.

Reasons to Purchase

Analysis of the impact of the RDR on retail investment sector from both investment provider and IFA perspective

Consideration of the wider impact of outcomes-based regulation of technology architecture and system requirements

Contents

Summary
Impact
Ovum view
Key messages
RDR has major implications for the intermediary business model
Need to support AC will impact distribution management on the provider side
Meeting RDR requirements will significantly increase compliance burden
Robust and flexible MI systems will be essential to drive desired outcomes
Intermediary management will need to support both commissions and AC
Firms needs to strongly consider integration strength and change capability in evaluation of vendor packages
business Focus: RDR will be dominant compliance driver up to 2012
RDR will drive major structural changes to the retail investment sector
RDR has major implications for the intermediary channel business model and product distribution
Changing remuneration from provider to consumer will drive significant business model disruption
Direct advice pricing may benefit bancassurance over the IFA sector, particularly at the low end of the market
RDR will impact distribution strategy on the provider side with the need to support AC
While final policy statements have not been published, firms need to start preparing for RDR
Meeting RDR requirements will significantly increase the compliance burden
Ensuring training levels will be an ongoing issue for both authorized IFAs and IFA networks
Supervision by IFA networks will require ability to assess advisor risk and increase supervisor productivity
Treating Customers Fairly and suitability requirements will continue and intensify
Firms need to focus on outcome, processes and culture over reporting
Regulators will be looking for senior management commitment to regulatory principles
Robust and flexible MIS will be essential to drive desired outcomes
MI needs to be complemented with strong business controls, although a risk-based approach can be taken
Complaints management is about approach, review and consistency, as well as timeliness
Technology FOCUS: ALIGNING Technology to SUPPORT RDR ReQUIREMENTS
Firms should look at BPM and performance management to handle RDR cost
IT will be essential to both deliver RDR requirements and manage cost implications
Management information systems need to support open-ended measurement and broad analytics
Firms need to develop a BPM layer in application architecture to allow the control and alteration of processes
Compliance productivity to drive scale requires case management and relationship management tools
Providers need to evaluate RDR systems impact on distribution and pricing
Intermediary management will need to support both commission and AC
Adviser charging will be a challenge for providers offering older and non-pension products
The medium-term impact on providers will be managing the turbulent distribution landscape

RECOMMENDATIONS

Recommendations for financial services institutions
Distributors need to look at the strength of front office applications to support advisory services
Providers need to look to improve the overall quality of service provided to distributors
Recommendations for vendors
Firms need to consider integration strength and capability to change in their evaluation of vendor packages

APPENDIX

Ask the analyst
Definitions
Further reading
Disclaimer

LIST OF FIGURES

Figure 1: Advice levels and current RDR requirements
Figure 2: After economic and market conditions, IFAs see RDR compliance as their strongest challenge
Figure 3: Current timetable stages for RDR implementation
Figure 4: Increasing qualifications are seen by IFAs as the greatest challenge in meeting RDR
Figure 5: FSA's approach to assessing MI for TCF initiative
Figure 6: Compliance requirements from RDR, operational implications and technology enablers
Figure 7: Implications of RDR on provider IT and operations functions
Figure 8: Strong servicing and product performance are the top IFA requirements from providers
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