Luxembourg hails RDR as ‘modest success’

The Retail Distribution Review has been hailed as a modest success by the Association of the Luxembourg Fund Industry.

The association’s report, carried out by Fundscape, found that while in the lead up to RDR many industry stakeholders had predicted that UK financial services would implode, these commentators failed to grasp the fact it was a supply-side and not a demand-side reform.

It stated latent demand or need for investment product has not been altered by RDR, but it is clear that access to advice and product has been disrupted, in some cases severely so.

The report stated: “The value of advice is still largely misunderstood by mainstream investors.

“There is an opportunity for the industry as a whole and financial advisers in particular to engage with consumers and demonstrate the value of the services they provide... but they may need to be innovative about how to do so.”

Alfi said that charging a large upfront fee may put off investors and suggested other options including better financial education, or employers paying for an initial consultation in partnership with advisers, with the costs being repaid once clients are signed up.

Customers being orphaned by their advisers or being unwilling to pay for advice has created an advice gap, according to Alfi.

“The existence of this advice gap is the one area in which the regulator has singularly failed to meet its objectives of bringing better quality advice and better investment outcomes to retail investors,” read the report.

The report also found despite expected disruption due to older financial advisers leaving the industry, the advice channel has actually remained fairly stable during the first year of the post-RDR era.

The most dramatic changes were in the retail banking channel, which saw flows plummet as a result of an almost universal withdrawal from advice.

Another post-RDR factor has been the growth of execution-only business, as IFAs evaluated the cost of advice, segmented their client base and found that it was too expensive for some clients, or too unprofitable to service some of their more modest clients.

Marc Saluzzi, chairman of Alfi, added that the investment industry has failed to harness the power of new technology which could help to deliver cost-effective, automated advice and guidance solutions for mainstream cost-conscious investors.

He said: “A key question in every market is how more people can be persuaded to save and regulatory change can be an opportunity to facilitate this. But it will not be enough.

“More generic education and guidance, together with tools to enable investors to make their own decisions where necessary, are to be welcomed. But regulators need to provide clarity to the industry on what is, and is not advice.”