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Major banks which cannot achieve a profitable level of revenue out of their sales teams following the introduction of the Retail Distribution Review (RDR) will just search for other distribution models to survive says Lorica's Simon Gregory.
His comments follow research by Ernst &Young, which shows that under the RDR, it will not be financially viable for banks to give advice to the mass market.
The research looked into the impact of RDR and revealed banks would have to charge Â£200 an hour for advice just to recover their costs.
Simon, who heads up Lorica's flexible benefits, says: "The major banks will always try to find the most cost effective route to market.Â If they believe that individual advice within the fee paying environment is beyond the reach of the masses and therefore they won't be able to achieve a profitable level of revenue out of their sales teams, one of a few things will happen; they will either close their private client advice teams down or provide a restricted range of products, therefore reducing the cost of the sales team by hiring less technically capable staff thus driving down the cost of sales.
"Alternatively they may become a product provider and produce and distribute their own products simplifying the requirements even further."
The Financial Services Authority is implementing the RDR at the end of 2012 as part of its consumer protection strategy.
The main aims of the RDR is to address the insufficient consumer trust and confidence in the products and services supplied by the market.Â This will be done by improving the clarity in how firms describe their services to consumers, addressing the potential for advisor remuneration to distort consumer outcomes and increasing the professional standards of investment advisers.
Simon adds: "I think the biggest challenges that RDR presents to the financial services industry is the time frame for introduction and the lack of consideration of a provision of advice for those who can't afford to pay fees.Â Many advisers are trying to use a moral objection to RDR on these grounds, in other words, someone earning Â£20,000 has as great a need for financial planning if not greater than someone earning Â£100,000 and the only way they can afford to pay is through commissions, which is rather self-serving of them since many IFA's work on a commission basis and therefore it is in their interests as much as the consumers for this model to continue."
Simon believes that technology and the online delivery of communications will be the key to enabling consumers to gain basic advice currently provided by the banks. He adds: "There is a general need for greater financial education and many employers have picked up on this. Several of the leading insurance companies are building financial education software at this time and we should start to see this filtering into the workplace within the next twelve months.
"Linking the education piece to a product selection tool such as CUBE from Lorica Consulting will further facilitate individual choice.
"I think the RDR is a positive step and I believe any adviser left in the industry after 2012 will largely agree with this view."
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