Independence: our response to RDR
In our response to the FSA’s final consultation on the Retail Distribution Review we voice our concerns that the new standards of independence, as explained in the paper as well as laid down in the draft Handbook text, will catch out firms who use their intellectual capital wisely to adopt an exclusive rather than inclusive approach to the vast and largely homogenous market in packaged investment products.
Such self-imposed restrictions are intuitively completely different for clients than restrictions that come from cosy commercial deals or distribution of a firm’s own manufactures. Yet,without explicit reassurances from the FSA about representativeness, good intellectually independent firms will either risk being lumped in with economically restricted firms like St James’s Place or end up conducting or outsourcing spurious research just to satisfy a tick-box approach by the regulator.
If firms like us that integrate planning and management choose independence because we cannot otherwise differentiate ourselves from masquerading manufacturers, we will do whatever research it takes. It will drive up costs for clients but being focused on fungible choices and information-lite distinctions it will yield no benefit for clients.
Amongst the questions we want answered are:
How will the FSA regard excluding actively-managed funds? Or for that matter excluding ETFs because they are not actively-managed?
Or excluding ‘managed’ funds because they delegate asset allocation and risk control decisions which a firm wants to retain? Or for that matter only using managed funds because a firm wants to delegate these functions?
Can we rule out all capital-protected structured products based on options because portfolio insurance is a zero-sum game – or would be without high industry costs?
How many funds on a platform or outsourced panel does the FSA think is ‘acceptably broad’?
How many geographies make an offering independent rather than restricted?
You can read our response here. We only addressed the questions on independence. I have nothing much to say to the FSA about banning commisisons that I did not say to them 10 years ago and many times since. What more can I say, except: ‘what took you?’