The Financial Services Authority’s retail distribution review (RDR) runs the risk of disenfranchising many investors from advice, F&C’s Ed Morse warns.
Morse, the head of investment trust business development at the asset manager, says an unintended side-effect of IFAs having to charge for their advice could be reluctance of the mass affluent market, or investors with relatively small amounts of money, to use their services.
Some analysts estimate that the cost of advice will be at least £600 and more likely £1,000 in reality, he adds.
“What RDR might actually end up doing is effectively disenfranchising large numbers of investors,” warns Morse.
“If you have £50,000 to invest and you’re paying a £1,000 of that for advice, I suspect what that will mean is a lot of individual investors will say ‘I’m not paying that’ because it’s a huge percentage of their assets.”
These mass affluent investors are likely to source advice from the friends, families and the internet, the commentator continues. Morse also predicts that as individual investors become better educated about financial products, they will increasingly turn to low-cost options such as investment trusts.
Morse’s comments follow an estimate by Andrew Power, lead RDR partner at business advisory firm Deloitte, that the reform could drive down the cost of providing retail investment products by as much as 50 basis points as clients become more aware of various charges.
“Many active fund managers will be threatened by the RDR because advisers and their customers will become more sensitive to fees, particularly if there is no evidence of superior performance,” Power claims.
“If these fund managers do not reduce their fees, advisers are likely to switch to low-cost funds.”
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