RDR One Year On

June 11, 2014

So, what do the changes mean for you?
Costs are now broken down
RDR has separated out the cost investors pay for advice on investment.

ETF Explainer: VWO
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Laird said: "People can now see how the costs are broken down and the advisors now have to justify these costs. There is greater scrutiny when advisors recommend an active manager and they have to prove that they can get the returns and where all the costs are going."

IFAs outsourcing portfolio management to DFMs
Discretionary fund managers (DFMs), who are third party investment managers and have the power to manage the investments of a fund, are also benefitting from independent financial advisors (IFAs) outsourcing their portfolio management. This is because the costs to run this process in-house can be too high, which inevitably transfers to investors. Outsourcing helps lower these costs.

Frank Spiteri, head of retail distribution at ETF Securities, confirms the sentiment: "There are compliance costs, best practice costs, [and] suitability costs that mean it is not effective to do this. Now that IFAs are charging their clients, performance really matters and ultimately cost has become a key factor for investors".

Wrap platforms are seeing flow
Another beneficiary of RDR are the wrap platforms. Wrap platforms are investment platforms where you can trade your ETFs, investment funds and pensions, which are then held in the same administrative account rather than as separate holdings. They are effectively wrapped together and this helps bring costs down.

There has been a big increase in the amount of money going on to platforms, and this is where RDR is beginning to shine.

In November, a quarterly report from Fundscape showed that net new business to wrap platforms had more than doubled the amount going into fund supermarkets for the first time. Wrap platforms accounted for 30.60 percent, or £2.6 billion, of all net fund sales for the three months to the end of September.

Another upshot of RDR is that investors are increasingly doing execution-only ETF trading, meaning they trade directly on the platform and subsequently make their own financial decisions – not through an advisor.

Hargreaves Lansdown is an execution-only platform and Laird explains people are increasingly happy to go down the no advice route. "ETFs and trackers are talked about regularly now so investors are increasingly able to understand them," said Laird.

What is 2014 going to hold?
RDR has inspired a new mind-set; one that is shifting from commission and product to holistic guidance for clients, high qualifications for advisors and a financial services sector that the UK can proudly claim is one of the most highly regulated in Europe.

"RDR has been very helpful for the ETF market but the advisors are able to advise on a range of products and they have done very well from it. Advisors who have justified their fees have really benefited and it has pushed out the people who were commission driven.

"Different investors have different needs. People won't all go for execution only and people will always pay to get good advice," Laird said.

 

 

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