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Fewer investors: ill-advised and more unadvised?
RDR is expected to drive up costs for advisers, causing many smaller advisers to join larger firms, and making it uneconomical for many advisers to service smaller investors.
Susceptible to knee-jerk actions
“We expect that when the proposals are implemented, there is likely to be a large number of smaller clients that advisers will be unwilling or unable to service,” says Anet Ahern, chief executive officer of PSG Asset Management.
“The risk here is that a large portion of clients may miss out on proper advice, which leaves them susceptible to knee-jerk portfolio actions and a departure from a solid long-term plan – responding to hype, sentiment and media in the absence of a sage adviser who sees the bigger picture,” she says.
New business model
For those investors who do not qualify for servicing via an adviser, a new business model may emerge. This will create an opportunity for firms who are able to adapt their business model and build a light touch, high tech service model to look after these investors.
“Of all the developments following RDR, this is the one area where the investor has to be careful when operating without advice,” she says. “As these capabilities are developed, the framework within which investors operate will improve, but there is always the risk that investors fail to take their time horizon, future needs and tax considerations into account when making changes to their investments.”
Businesses left more robust
When it comes to the type of adviser, once the RDR proposals are implemented the investor will now know upfront whether the adviser is truly independent, or linked to a product provider such as a life assurer. This is good news for end investors as the adviser businesses that remain are likely to be more robust and solid, with better continuity and record keeping. It is also a positive for the investor as there will be more clarity around the range of products offered.
“It is much better to be told upfront that a large number of the funds recommended to you will be from the adviser’s firm, than to wonder whether these are surreptitiously being pushed on to you. Then you can focus on the advice process and whether your needs are being met,” Ahern says.
Truly independent advisers will probably form more hubs, or alliances with retail asset consultants for services ranging from research to product structuring. In this way, they can tap into the scale provided by a research team’s efforts, as well as the administration and portfolio construction services they offer. If one team researches funds for 10 or 100 investors, the effort is the same. All of these developments aim to free up the adviser’s time to focus on their advice process and the servicing of their clients, definitely a plus for investors.