The majority, 74%, of fund managers who took part in Northern Trusts latest survey considered the impact of the UK Retail Distribution Review (RDR) and are actively working on adapting their business accordingly. However, these fund managers see a diverse number of challenges affecting the implementation of the RDR.
Northern Trust surveyed 30 of its fund manager clients in a workshop in London to assess their readiness for RDR. The UK Financial Services Authoritys rules were introduced to ensure retail investors are be better informed about investment products, particularly where financial adviser commissions are attached. From 2012, commissions on product sales will be prohibited and, instead charges for the advice provided to the client by the advisor must be agreed and paid for by the client. This means a client can opt to pay for the advice independently of the product or from the product itself, radically affecting fund managers.
The RDR, due to come into force 31 December 2012, will affect any fund distributed in the UK to retail investors, with managers needing to consider their distribution channels, asses changes and determine what services they want to offer to IFAs and investors, said Karen Hamilton, head of fund administration product development (EMEA), at Northern Trust. Fund promoters will, as a result, need to assess the impact to their distribution chain, as well as any required technology enhancements and potential changes to their distribution strategy and fund range.
Respondents expressed concerns around share class launches and the inconsistency between the UK and European (where commission can still be charged) share class models. 68% planned to launch 1-3 additional share classes, while 21% said they were not planning on any new launches.
While 60% of respondents envisaged their pricing model for clean-fee share classes (called for under RDR) would be between 75bps-100bps, 25% still remained undecided and listed reviewing the level of charging on existing share classes and pricing models, a challenge.
Around 56% of respondents envisaged an increase in the amount of business through distribution platforms, but saw keeping them happy as a challenge, alongside tracking trail commission and the issues of rebate fees.
There is no doubt that fund promoters need to start planning their response to the RDR now in order to capitilise on opportunities presented in a rapidly changing investment market, said Hamilton.
(JDC)