Since the start of the year, several changes have taken place:
- The majority of advisers had already started charging their clients for advice rather than taking commission, but since the deadline passed, all advisers must now use this model
- Financial advisers have taken one of two routes – independent, meaning they advise across the entire investment spectrum; and restricted, meaning they can only recommend certain products and providers
- Advisers are outsourcing their investment process to discretionary managers, wealth managers and providers of multi-asset and multi-manager products
- Fund providers began dropping charges across their ranges last year, promoting "RDR-ready" share classes, which range from 0.65 per cent to 1 per cent
- Due diligence has come to the fore, with the FSA requiring advisers to show why they have placed a client in a particular investment, with the criteria for suitability including cost, risk and objectives
Retail funds
Falling charges have been the most talked-about result of RDR on retail funds.
Many fund houses have launched "clean fee" share classes, which separate out the annual management charge (AMC), yearly expenses and, most notably, do not include a platform rebate.
In the latest of the RDR-driven fee changes, Investec Asset Management announced earlier this week it was dropping initial charges across its entire range of actively managed funds.
Prior to dropping the charges, Investec expanded its range of funds to focus on clients’ risk tolerance and provide multi-asset products capable of dealing with a post-RDR environment.
"RDR was the great catalyst to give us a deadline to get our work done," said David Aird (pictured), UK managing director at Investec. Aird says the firm has expanded its multi-manager fund range, but says other products, such as Alastair Mundy’s Cautious Managed and UK Special Situations portfolios, have been around for years.
He points out that two of the key goals of RDR were to unbundle pricing and promote transparency, which the FSA believed would reduce the overall cost to clients.
However, Aird says the industry needs to focus on value for money rather than overall costs.
"There is a focus on costs because many active managers in the industry can’t outperform their benchmark," he said.
"But as an active manager, if you can give consistent outperformance in this low interest-rate world and compound that over 20 to 30 years, that makes a significant impact on your wealth."
Aird says he has noticed a trend among advisers to outsource to multi-manager providers and discretionary managers, which he says will likely underperform active management in the long-run.
"Many of these solutions will be left wanting and will be disappointed," he said.
Platforms
Hargreaves Lansdown’s Adrian Lowcock (pictured) says the biggest impact RDR has made on investors relates to how assets are handled on platforms and wraps.
As a result of RDR, clients are now able to transfer holdings from one provider to another, without having to sell the shares and buy them back again.
"The RDR rules really freed up the platform market," he said. "It removed a massive cumbersome burden – the inability to move stock."
"When making transfers across from other platforms, there have been barriers to exit and people have been stuck there for years."
Lowcock says this is an area where Hargreaves Lansdown is "absolutely primed" because in today’s low-yielding environment, the majority of investors’ cash is already invested. Therefore, if they want to make a change, they will likely need to shift their capital from one platform to another.
However, he says there is still a cost involved, which needs to be factored in when transferring holdings.
Lowcock says people often overestimate the importance of cost on what a client wants.
"Cost comes in but only to a certain point," he said. "Clients do value good service. You’ve got to have motivation to change and that’s usually about the quality of service."
Investment trusts
While the AIC says many of the changes that have been taking place in the investment trust universe cannot be directly attributed to RDR, the regulatory changes represent a long-term opportunity for the sector.
The trade body says it has seen an increase in the number of investment companies introducing discount-control mechanisms, or even zero-discount policies, in order to reduce the volatility associated with trading the vehicles on a higher or lower value then their underlying assets.
It added that there has been a number of changes of management groups on individual trusts, and that one potential merger looks likely.
In addition, many investment trusts are moving to quarterly dividend payouts in response to the current appetite for income among investors, as well as shifting their focus outside the UK.
The AIC cited Alastair Mundy’s Temple Bar IT as the most recent trust to announce a change in mandate to take a more global remit.
Annabel Brodie-Smith, communications director at the AIC, has seen a massive influx of advisers seeking training and education on investment companies.
"Since RDR started, requests for training have gone up," she said.
She added that the AIC is changing the way it reports gearing figures in order to make them easier to understand for a retail audience.
Passive investments
Pollyanna Harper, head of intermediary sales at iShares, says because advisers have needed to expand their product knowledge and offering under RDR, there has been increased interest in passive vehicles.
iShares, the exchange traded fund (ETF) provider, has developed its educational services for advisers and discretionary fund managers to help them provide suitable products for investors.
Harper says this often involves blending passive solutions with active vehicles, which is shifting the debate away from the active vs passive argument towards a more tailored approach.
"Advisers are starting to toe-dip into ETFs, where they might not find funds or managers that are suitable for the [client]," she said.
"Cost is now at the forefront for all financial advisers."
"ETFs are the perfect way of [reducing costs] while blending them with other vehicles."
ETFs are traditionally cheaper than many actively managed funds, although firms such as Investec, BlackRock, and Schroders have moved to reduce charges on their actively managed ranges.
She points out the trend towards outsourcing has continued past the RDR deadline at the start of the year, with more advisers using discretionary fund managers to handle the investment side of their clients’ business.
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