‘There was talent that could have been harnessed and instead it was lost’

The Retail Distribution Review has virtually killed off bancassurance and caused many older advisers to exit, leaving recruitment business to pick up the pieces – but it was worth it, says Rachael Fennessey.

The founder of adviser recruitment business Aspire Executive Search says 2012 was a time when businesses needed to embrace the changes and find their opportunity from it.

This included recruiters. As bancassurance advisers started to flood the market, recruiters had to refocus on supporting the independent marketplace and helping advisers transition the change in their own career paths.

Now, Fennessey tells FTAdviser In Focus, there is a “distinct talent shortage”, which is driving up the salaries of experienced, competent and well-qualified advisers.

This, in turn, is making it difficult for smaller businesses to continue to compete, she says, as she explains the challenges recruiters have been facing in the first 10 years of the RDR.

FTA: What was the immediate impact of the RDR on recruitment in 2013?

RF: It forced many advisers into early retirement and the transition of regulated advisers into the protection, mortgage and equity release markets.

The industry lost a lot of ‘qualified’ financial advisers and there was a massive talent drain as a number of advisers that had never done the Advanced Financial Planning Certificate felt that the step to Level 4 was too much for them in the later stages of their careers.

It was a shame for the older advisers as there was a talent pool there that could have been harnessed and utilised and instead it was lost.

FTA: How did recruiting advisers change in the early years of RDR?

RF: There was an initial lull, the industry lost a clear direction with businesses having to refocus their direction and recreate their advice model and navigate the accompanying costs.

There was a transition period where advisers who had only ever been employed had to rethink their strategy and consider going into the independent financial advice market and look at self-employed options, which did not feel comfortable to many.

The focus has switched to the gathering of assets, which interestingly, we could say is counter to the rationale behind RDR, which was all based around putting the consumer first.

Prior to RDR the advisory sector was transactional in the main and this meant that advisers would jump from job to job looking for new business opportunities as there was little or no on-going income.

This of course all changed. With RDR, the reduction in initial fees meant that advisers had to work harder to maintain their income and it favoured advisers who had already transitioned to a fee charging model.

The IFA businesses who had started to change their fee structure in the years preceding RDR were better placed to make the transition and continue to grow their business model, but many practices had not evolved to this model and so the transition was complex and costly, which inhibited their growth while they restructured their operations.

FTA: What did these changes mean for your recruitment business?

RF: As a recruitment business we had been heavily involved in supporting the then sizeable bancassurance marketplace and its growth and in building their adviser and management teams.

We as a business also had to restructure our model and navigate to supporting the independent marketplace and helping as many advisers as we could transition the change in their own career paths while helping the independent practices take advantage of the influx of clients and bancassurance advisers into that space.

A lot of bancassurers went to work for networks. Although a lot succeeded, many failed and these advisers were soon back on the market.

Around this time (2012-13) we also saw the start of the large consolidations that we now see happening the industry over with new consolidations happening every week.

Indeed it was a time where businesses needed to embrace the changes and find their opportunity from it.

FTA: Are there any unintended consequences caused by the RDR that are still being felt today?

RF: RDR altered the landscape of the market, and banks and life companies pulling out of the market removed those adviser breeding grounds, which has consequently meant that there are fewer avenues to market, which has led to the huge adviser shortage we are currently experiencing.

The focus has switched to the gathering of assets, which interestingly, we could say is counter to the rationale behind RDR, which was all based around putting the consumer first.

FTA: How has the makeup of the recruitment industry changed as a result of the RDR?

RF: As a recruitment business working in this industry we are focused on two areas, one is supporting the large tied (or restricted players) in the ongoing recruitment of their employed advisers to help them service and look after their clients, and the other is working with networks and other acquiring financial planning firms on the acquisition of assets under management.

The salaries for experienced, competent, well-qualified advisers is going up and up and this is making it difficult for smaller businesses to continue to compete.

We, as recruiters explore the adviser’s needs for their clients alongside the needs they have as an adviser and pre-RDR this was not something that recruiters got too involved in as advice was more transactional.

It is also a standard part of the process that we check that advisers have the relevant qualifications, that their SPS is up to date, whether they are stronger at growing a portfolio or retaining business, what AUM they have that is transferable, where that money is invested currently, what the adviser’s long-term plan is for their own exit.

FTA: What are the biggest challenges recruiters and employers are facing at the moment?

RF: There is a distinct talent shortage and an ageing population of financial advisers and an estimated 15,000 (three-fifths of the industry) set to retire over the next 10 years.

We are not, as an industry, replacing this scheduled reduction by encouraging enough new talent to enter the industry.

Combined with this the salaries for experienced, competent, well-qualified advisers is going up and up and this is making it difficult for smaller businesses to continue to compete.

Because of the talent shortages when advisers are securing job offers with salary increases, employers are counter offering massively as they know the cost of replacing that adviser and the cost of being without them while they replace.

This is bumping salaries up even more and making it more difficult for both recruiters and employers to get people ‘over the line’.

FTA: Looking back, do you think the RDR was a good thing?

RF: Yes it was as it protects the consumer. The fees have to be transparent and with the introduction of ongoing advice fees the service and the attention these consumers receive is far better than it was previously.

Hindsight is always such a marvellous thing and with that we can look back now at the issues this has caused the industry, but for the consumer, it was a good move.

FTA: Are there any elements you would have designed differently?

RF: Yes, to have reduced the out-flux of advisers who did not want to obtain level 4, and to provide a different route for 55-year-old plus advisers to continue.

There could have been a better protection of bancassurance, the 2008 crash was the beginning of the end and the advent of RDR virtually killed off bancassurance, leaving a massive advice gap for the mass marketplace.

carmen.reichman@ft.com