Should you change your investment approach post-RDR?

The advent of RDR is changing the way advisers view their investment offering, says Phil Lindsay, development director (UK) at OBSR.

If I was sitting in Canary Wharf having to think about the next 16 months in the run up to 1 January 2013 I might be thinking there is still much to do to be ready for the biggest change the industry has seen.

Over the years, we have passed through attempts at capping commission, disclosure, various attempts at capping charges, such as stakeholder and a move to outcomes-based regulation yet nothing the level of change the RDR promises.

And given the scope of the review, which affects various existing regulations and stakeholders, there may be challenges ahead for the regulator in the implementation.

Step change

Whatever the motivation, we seem to have moved a long way from talk of creating an environment where the savings gap could be closed with accessibility to advice for all. We have instead a step change aimed at removing any suggestion of provider or product bias through the outlawing of commission and much higher qualification requirements to advise.

The effects may take some time to work through the system as the various contributors to the market find their level. This has already started with intermediaries quite rightly reengineering their businesses, defining their investment and servicing propositions to clients.

It is clearly important the intermediary is in a position to continue offering clients a valuable service but at the same time is working within a sustainable business model. Different intermediaries will arrive at this in different ways.

Offering appropriate solutions at all levels seems to be a common theme and the suitability paper earlier this year from the FSA struck a loud cord with most of our clients. In many ways, this paper was a statement of the obvious; we should risk-profile clients and advise them accordingly. This can be done in a number of ways – from risk-based fund solutions to portfolios of funds that reflect the asset allocation and level of volatility in line with the risk profile.

Fund selection

Fund research has, for a long time, focused on finding funds not just by sector, but by type, to help advisers find appropriate funds offering a good mix of risk and return against their peers. We would say that, but we would also say that risk profiling a client regularly even if no changes are required is, in itself, justification for adviser charging if it reassures the investor of the ongoing suitability of investments.

The price of active versus passive debate is likely to come to the fore as some determine their investment proposition is supported by the passive route for reasons such as price and ease of building portfolios to an asset allocation. Active managers would argue that managers who can demonstrate superior returns against their peers for a defined level of risk over the long run offer value to investors worth paying for.

OBSR would argue that investors need all the help they can get and investing appropriately in active funds may go some way to helping them as the onus to secure their own futures is increasingly heaped onto them by successive governments and employers.