Market Gravity

From Pain to Gain – how you can turn RDR to your competitive advantage

20 August 2012

Introduction

Preparing for the Retail Distribution Review (RDR) has been the top priority for many providers and distributors of financial service for some time. Most firms are on track to meet compliance deadlines, but how many will use this opportunity to really shake up their business model, reposition their customer proposition and leapfrog the competition?

Recent Market Gravity research and our first-hand experience from working in the industry, suggests that most companies, constrained by IT and organisational challenges, are settling for compliance. For a more customer-centric view of RDR, we have created the RDR Business Readiness Checklist which asks: “beyond compliance, what will it take to win in a post RDR world?” There are 5 areas to consider in your business.

1. Stay legal - is your business ready to comply with new regulations?

Ensuring business compliance with RDR has been the primary focus for many businesses. This is understandable given limited resources and a fast-approaching deadline. Sales processes, charging models and product T&Cs will all be aligned to a new framework within a relatively short time period. Consumers will realise how much they need to pay for advice, and providers and advisers will work hard to demonstrate their value. This is no mean feat in itself, but given that all firms need to be compliant as a minimum this is no basis for differentiation or competitive advantage.

2. Secure adviser relationships – are your relationships strong enough to survive without commission?

Commission has strongly influenced provider preference up until now, but this needs to change. With 50% of consumers unwilling to pay more than £50/hr for financial advice (PwC 2010 – Distribution Post 2012: Strategic Challenges RDR Consumer Research) and 6,500 advisers forecast to leave the industry (Future Thinking Partners 2010) it is predicted that we will see a significant period of consolidation, where adviser firms form partnerships to mitigate rising administration costs. Providers will need to support these new adviser firms through their transition whilst strengthening relationships with their existing adviser base. This means helping them segment and target their customers, streamline operations, and demonstrate a clear value case to their customers.

3. Provide a winning direct proposition - is your D2C offering good enough to attract non-advised customers?

47% of total UK wealth is invested directly (i.e. not through an adviser) and the majority is invested in simple savings and investment products, (Market Gravity Market Sizing). This market is predicted to grow by 61% by 2016, as more customers choose the direct route. Without a compelling direct customer proposition your business risks losing significant market share. This means recognising which customers you want to attract, focusing on a simple core product set, and delivering a great customer experience across all your channels.

4. Organise around customers - does your business structure help or hinder?

The post-RDR ‘winners’ will be the companies that have a deep understanding of their customers and have aligned their operating model to these needs. What does this mean in practice? Consider a 50-something family man contemplating early retirement; the chances are he will have to contact at least four different teams in the same company to take care of pension, Unit Trust, Retirement income and tax issues. By breaking the product siloes, companies can marshal their resources in a way that benefits customers.

5. Game changing business model - can you change the rules to gain a competitive advantage?

RDR is the single biggest shift in regulation in the retail savings and investment industry for a generation, yet many companies remain focused only on implications for compliance, rather than taking the opportunity to make a step change in their business and leapfrog the competition. Established market leaders should consider how new entrants would structure their business model and break long held assumptions of the industry to best effect in the new environment, and use these insights to transform their business. Being proactive in this innovation will be the key to your success: waiting simply to react to new entrants such as Virgin Money and Co., focused on delivering differentiated customer propositions and experiences from the outset will put your firm at a disadvantage.

Are you struggling to deliver against any of these areas? We can help with the following RDR services:

Secure adviser relationships: Knowing who to target with a winning proposition

Adviser segmentation by future potential value they represent to your business
Adviser propositiondevelopment of a service that supports their transition and delivers your firm a greater share of advised funds

Provide a winning direct proposition: Designing an integrated future experience for customers

Direct customer propositiondevelopment, aligned with your broader business and RDR programme
Customer experience designby target customer, including capability assessment and customer validation and testing of the design

Organise around customers: Aligning capability to meet the needs of your customers

Operational design,organising your business around customer needs and the delivery of your winning proposition
Organisational capabilitythat defines and scopes the future organisation in line with the company growth strategy

Game changing business model: Planning ahead for the future world

Scenario modelling considering future eventualities and the threat of competition to your business
Strategic road mapcreation, from compliance to new revenue generation opportunities

For further information please contact Joy Weston-Arnold.