The impact of the Retail Distribution Review on the advisory jobs market in the UK could be severe - this article ponders the implications and responses from the industry.

In the week that a UK Treasury select committee recommended a one-year delay in implementing the Retail Distribution Review, warning of a potential “stampede” of advisors from the investment industry, it’s easy to see that the road to 1 January 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 high net worth 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 the 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 the RDR will have on the number of advisors who choose to – or are able to – remain in the industry.

On the face of it, the numbers are being pitched as reassuring. Some 49 per cent of advisors are already qualified to the correct level and – according to one, at least 82 per cent expect to remain as retail investment advisors. Hold on – let’s flip that around. We could expect an 18 per cent reduction in the overall advisory workforce? That’s huge. Even if we assume that 82 per cent figure to be accurate, it still doesn’t take into account the fact that a proportion of the 51 per cent 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 advisors 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 ongoing 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.

Looking outside

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 advisors 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 advisors.

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 advisor 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 advisors 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?