Whither fund marketing after the RDR?

Most investment advisers will be relaxed about the declining number of fund launches and increased consolidation in the UK and Europe.

It is not as if advisers will be left without a place to invest their clients’ money: indeed, many will feel the fund marketing whirl of the past 20 years has not always been in the best interests of consumers and clients.

But if a 2012 hiatus was inevitable because of the sheer scale of the regulatory disruption, how long will it last and what will emerge afterwards?

The big change after the RDR is that funds will not pay commission. Ostensibly, they will be cheaper having had the standard-issue initial commission stripped out – typically 3.5 per cent of clients’ investments.

One could argue that in the past, fund firms simply paid the going rate. Where commission was adjusted upwards in ‘special offers’ to increase fund flows, it was usually where funds were offered through life insurance firms. Investment trust and exchange-traded fund managers have always seen this differently, however. They argue that 3.5 per cent of a client’s assets was more than enough to ensure bias to certain products, if not to certain providers, and effectively prevented them attracting money from financial advisers and their clients.

Now that the new ‘pay-to-play’ rate on commission is zero per cent, fund firms have lost a significant lever. However, it doesn’t alter the fundamentals of marketing funds. In fact, budgets might get bigger, given that the original thinking behind paying commission on a unit trust, developed in the 1980s, was that it would mostly replace the marketing and advertising cost for the fund manager.

That was not quite how things turned out, but arguably the RDR frees up marketing budgets rather than diminishing them. Fund managers will still need to tell IFAs about new funds and make the case for existing ones, particularly if a fund management firm believes it is offering an overlooked gem. If you want direct sales and wish to attract funds, you may still see merit in, for example, poster advertising to reinforce the marketing messages of the big direct to consumer players. Publishers, media buyers and even public relations firms should perhaps take note.

The RDR also does not preclude new launches. We could see a spate of these once the regulatory dust settles on the new reform towards the end of next year. Launches have not stopped altogether in any case, but there are dozens of reasons why fund managers might offer a new approach which could manifest itself in a new fund. Some may even be waiting in the pipeline. These could include the demand for passively managed strategies with an actively managed component, the continued shift in global economic power, the increasing number of firms paying regular dividends worldwide and the rising influence of new participants in the markets such as sovereign wealth funds, to name but a few.