The most important lesson to be learned from the UK experience of RDR is that positive engagement between all parties creates an easier process and regulation that works effectively for all concerned, Valentina Romeo reports
The study, ‘Navigating the post-RDR landscape in the UK; assessing the potential impact of an RDR regime on the European fund industry’, looks at RDR, which came into effect in the UK on 1 January 2013, and which aimed to improve adviser qualifications and remove product bias from the advice process by changing the way advisers are remunerated.
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Despite predictions that the UK financial services industry would simply implode under such radical regulations, the timing of RDR coincided with a more sustained recovery in the UK, an improved outlook in the Eurozone and consequently rising stock markets, says the report.
The overriding view on what the regulator could have done better in the UK is to map out a timeline of what the requirements of the regulation are, what they would achieve and when that burden might start to ease. The overwhelming feedback from advisers in the UK is that regulatory costs – both in time and direct costs – have continually risen both through the higher qualification requirements and through increasing reporting and documentation.
Saluzzi, chairman of ALFI, explains: "As the concepts of RDR are adopted more widely across Europe, the fund industry has an opportunity to have wider appeal as long as it learns from the lessons of the UK and the Netherlands. The main message for the industry is that, to anticipate and avoid any pitfalls, we must engage, engage, engage; engage with policy makers, engage with the regulators, engage with distributors and, last but not least, engage with consumers".
The report says the biggest failing of RDR is the advice gap, born out of advisers finding advice was too expensive for some clients or too unprofitable, banks pulling out of advice and customers being unwilling to pay for advice. Removing the cross-subsidy inherent in management and advice fees may be fair, but RDR did not replace it with anything or consider the downstream impact on lower-value customers.
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By GlobalDataWith RDR, there has also been a substantial rise in solutions and packaged products such as fund of funds and risk-profiled solutions that allow advisers to provide a relatively low-cost and low-touch service. As a result, influencers and gatekeepers that manage model portfolios are increasing the overall control of the industry.
Advisers are outsourcing investment to wealth managers, and wealth managers are moving into the retail sphere by unitising their model portfolios and providing solutions to advisers and other distributors.
The report also looks at the Dutch inducement ban, as well as the impact of RDR / MiFID on Europe and its potential impact on France, Germany, Italy and Spain.
With a harsher RDR regime style in Italy, for example, a DIY-investing model would increase particularly among the mass-affluent investors, who would be able to turn to numerous online platforms such as Fineco, FundStore,CheBanca, MoneyFarm.
In Spain, instead, a direct-to-consumer investment would not take off as investors prefer to do business face to face — even if they’re probably going to be over charged, says the report.
