Barclays Says RDR Is Great News For Business As Deadline Approaches

Tom Burroughes

5 September 2012

The clock is ticking. In under three months, the UK wealth management industry faces one of its biggest regulatory overhauls. And as far as Barclays is concerned, the Retail Distribution Review “big bang” is an unmixed blessing for its business.

The RDR, a programme of reforms enacted by the Financial Services Authority, has been covered exhaustively by this publication over the past year or so. It is controversial - there have been concerns that up to 15 per cent or more of UK independent financial advisors could quit the industry, leaving less well-off clients without access to advice, for example. The RDR has triggered a rash of mergers and acquisitions, not to mention the regulatory IT budgets of big banks.

So how does Barclays feel as the industry enters the home straight?

“I think the RDR is going to drive a real flight to quality in the next few years. From an industry perspective, the RDR is challenging it to raise standards in terms of transparency, level of choice and quality of service. It gives clients an opportunity to be more demanding about what they expect from their managers,” Stuart Cummins, managing director, wealth and investment management at Barclays, said.

“We are already well-positioned for RDR and see this as a good opportunity to accelerate the growth of our business,” Cummins told this publication in a recent interview at the firm’s Brook Street offices in London’s Mayfair district.

Cummins, like many of his peers, must feel almost relieved the RDR is about to take effect, as he has been working on the project for more than two years now. His role is managing director in charge of the London and South East region for Barclays' private bank. Cummins knows Barclays inside and out: he has worked at the bank for 23 years, having worked in the wealth and investment management arm of the firm since it was formed in the middle of the previous decade.

Awareness

Are clients aware of RDR yet?

“We have already started to communicate to our clients, but I don’t think that consumers as a whole are very aware of it yet. The mainstream media hasn’t really been covering it in great detail yet,” he said. “The industry is spending far more time focusing on it and it’s important to start the education process with clients.”

Cummins said there is still a misperception in the industry, not within private banking, that the financial advice that they have received has been free. The implementation of RDR will make this much clearer and drive more informed choice, he said.

One of the key requirements of the RDR is to raise the level of advisors’ qualifications. So how is Barclays doing? (To view an article on the issue of qualifications and standards, click here).

“A high percentage of our advisors are already operating at a Level 6 qualification grade . We have been ready to go for some time and the majority of our advisor base will be over qualified by the end of the year.”

“Firms that have been predominantly built on trail commissions will see the biggest challenges to their business model. This is typically not the case for private banks, and certainly not for Barclays,” he said.

“For us, the main focus has been the further development of our advisory services, further investment in the qualifications and technical depth of our client-facing staff and using this as an opportunity to deliver an improved service to our clients.

Gamma

The RDR-influenced changes to improve service cannot be seen in isolation, he said, but as part of the broader Project Gamma instituted by Barclays (back when it was called Barclays Wealth) as a five-year plan to be one of the leading global wealth managers.

“We’re half way through the programme, and a third of this significant investment into the business has been focused on hiring the best talent in the market, he said, which has seen close to 1,000 new hires brought into the business,” he said.

Managing potential conflicts

One of the key issues at the core of the RDR is to make advice more impartial so that products are not pushed at clients regardless of their real needs. The FSA has certainly kept up the pressure on the industry with some punishments for banks in recent months where clients were sold allegedly unsuitable products. At a big outfit such as Barclays, where the wealth arm works next to an investment banking business, the avoidance of “product-push” is vital.

Cummins said the firm is determined to focus on its advisory-led approach. “We are an advice-driven business and not a product-driven one. We believe in searching the market widely for the very best managers on behalf of our clients. Our goal is to invest with some of the best managers in each investment universe which we define as achieving top quartile performance over a market cycle, typically three to five years.

“Another example is structured products. Each one is constructed in order to play a research-backed theme. We operate a panel of more than 12 counterparties and operate an auction process to secure the very best terms for our private banking clients where a structured product is the best solution for them,” Cummins said.

Barclays has not had the easiest time of it in recent months. But as far as the wealth management side of the business is concerned, next year’s start of the RDR holds few terrors, and plenty of opportunities. The question, of course, is how the client will think about this process in a few years’ time. As always, this publication will be on hand to track how well this goes.