Fund managers raise fresh fears over RDR client detriment
Fund managers warn of dangers of remaining in cash if an adviser’s influence is lost.
Investors could become “recklessly conservative” if they lose access to advice following the RDR, fund managers have said.
In its 10th annual survey of the fund management industry, the IMA noted concerns from some of its members that investors who could no longer afford advice following the ban on commission payments may not be willing to take on riskier investments without the input of an IFA.
One senior fund management executive, responding anonymously to the survey, said: “If people don’t have advice, my experience has been that, rather than going into riskier assets, most are actually recklessly conservative and will sit in cash for 30 years rather than choosing to take a bit of risk which they could actually bear.
“If we get out of the habit of using an IFA and we no longer have those links, that’s going to be extremely damaging to the industry in the long term.”
The concerns were voiced alongside wider fears that “less affluent” clients would be unable to afford advice when investing in ‘one-off’ products such as Isas.
Paul Resnik, co-founder of risk ratings specialist Finametrica, agreed with the IMA’s concerns, saying conservative investment is often driven by “ignorance and fear” rather than an investor’s low risk tolerance.
“An adviser will help their client better understand investments,” Mr Resnik added. “Without someone in the community educating clients about investment returns and risks it’s more likely money will be invested in bank deposits.”
The FSA’s focus and lines of questioning were also criticised by respondents to the survey, with several executives complaining that fund managers were being treated like banks when it came to reporting exposures and capital adequacy.
One respondent said: “A lot of the reporting requests we get are certainly intrusive but they also strike us as naive; we don’t really know what [the FSA is] going to do with all this data, and it’s not the data that we would have collected to answer the questions that we think they are asking.”
Fund managers also expressed reservations about the way in which pan-European and international regulation was being implemented, warning it could breed fragmentation and protectionism.
The US government’s Foreign Account Tax Compliance Act - aimed at clawing back tax from US citizens investing abroad - was described by one senior executive as “regulatory imperialism”.
IMA chief executive Richard Saunders said: “The IMA is currently contending with more than 35 different pieces of regulation which impact the asset management industry.
“We are seeing a rise in more aggressive extra-territorial regulation which is adding cost and complexity to the industry and breeding protectionism in different jurisdictions.
“The litmus test for new regulation should be whether it brings real benefits to end investors. Too often this seems not to be applied.”