RDR: A human capital timebomb?
In the week that a UK Treasury select committee recommends a one-year delay implementing RDR,
cautioning a potential ‘stampede’ of advisers from the investment industry, it’s easy to see that the
road to January 1st 2013 may be anything but smooth. A casual glance at the financial press shows
plenty to stir concern; the same Treasury select committee recommending an ‘opt out’ option for HNW
clients, 53 IFAs actively downsized staff numbers in the last month and lingering questions remain
over how beneficial the review will genuinely be for client choice.
A significant amount has already been written around RDR, its implementation and the effects it will
have on the industry as a whole. One area which seems as yet to remain unexamined is the direct
impact RDR will have on the number of advisers who choose to – or are able to – remain in the
industry.
On the face of it, the numbers are being pitched as reassuring. 49% of advisers are already qualified
to the correct level and – according to an article appearing in the WealthNet on 18th July - ‘at least
82% expect to remain as retail investment advisers’. Hold on – let’s flip that around. We could expect
an 18% reduction in the overall advisory workforce? That’s huge. Even if we assume that 82% figure
to be accurate, it still doesn’t take into account the fact that a proportion of the 51% who are yet to
take the exams may not make the grade or indeed want to remain in the industry at all.
Putting aside the employment law ramifications of dealing with staff who have failed to qualify to
the new standards, there remains a not insignificant number of highly experienced IFAs and senior
advisers who – given their vintage – were ‘grandfathered’ into their current roles and likely last took a
written exam when they were at school. Will these individuals really be motivated and able to put in
the 400 hours of study to achieve the minimum Level 4 qualification prescribed by the FSA? It would
be easy to see a gentler path might lie in selling up one’s assets and taking an earlier retirement.
Reinforcing this, a number of specialist broker firms have sprung up expressly to assist in the sale of
smaller IFA firms and their assets.
According to an article posted on Money Marketing website, in 2009 the number of IFAs in the
UK was estimated to be around 21,000. So let’s take a dim view of the numbers and ask where
the industry is going to make up a potential shortfall of around 3,700 client-facing staff? Without
significant, imaginative hiring strategies, it’s hard to envisage how this gap will be satisfactorily
bridged.
Larger institutions already have on-going hiring needs which they struggle to meet due to the paucity
of appropriately qualified client advisors in the UK marketplace. Add into this a need to cover
significant attrition connected to RDR and you’re left with a major human capital headache.
The senior manager of a UHNW team recently suggested to me that looking outside the industry
at widespread lateral hiring might be one answer. Attracting experienced individuals from related
industries into financial services is not a new approach – at least one major private bank has had a
programme of this type for some time – but one might take the view that this replaces an intake of
new graduates with one of senior level professionals who are making comprehensive career changes.
Is this really going to do the job?
The reverse of the RDR attrition problem is of course that those advisers who do qualify may be
viewed as having greater market value than non- or lower-qualified colleagues. Institutions wishing
to retain fully qualified staff will have to think long and hard about what measures can be put in place
to ensure loyalty. Above and beyond salary and bonus compensation, firms need to be asking
themselves how attractive they are to work for, and what they can do to be proactive about likely
attempts by rival firms to tempt away advisers.
Major firms with mass-affluent businesses may feel that the fee-paying model is beyond the reach
of their clients and may consequently pare down their adviser teams; offering fewer products and
ensuring that future hires need not be as technically capable. This clearly runs the risk of staff feeling
automatically downgraded.
My sense is that larger firms with more significant hiring budgets will benefit from the imbalance likely
to be created across the marketplace. With deeper pockets and greater latitude to hire, they will be
able to move quickly and forcefully to snap up advisers left dissatisfied by changes and upheavals
within their own firms. Boutique firms will need to consider LTIPs – including equity ownership – to
bolster their attractiveness, both to new and existing staff.
Eighteen months remain until zero hour – if you haven’t already asked yourself the questions above,
and your recruitment and retention strategy isn’t yet in place to ensure your advisory capability
remains intact when RDR is put into effect; why not?
Lyssa Barber is Managing Consultant & Head of Private Wealth Management at Allemby Hunt
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