L&G on RDR: Danger of a two-speed system

18 August 2011 | By Henry Brennan

Simon Ellis, the managing director of Legal and General Investments, says the technology “space race” between fund supermarkets and full wrap-accounts could draw to a close after the introduction of the retail distribution review (RDR).

“Consumers will ask; why am I paying for all this functionality? How much of functionality gets used or is really important to [me]? The pressure on platform pricing could also be aggressively down,” he says.           

“The role of platforms is central”, maintains Ellis, but he adds if the RDR legislation is not ready in time, “we might have a two speed RDR, one for paper based standard advisory business for platforms and another for on platform.”

While there is a slim chance of this happening, Ellis (pictured) notes there is a much higher chance of complex, impractical legislation being implemented.

“If something unexpected comes out and is complex, then platforms may not be ready for 2013. Even unwelcome decisions can be welcomed so we can move on.”

The problem is that it is still not clear what the final version of RDR is going to be or how it will be applied. Comparisons have been drawn between the differences in Europe’s Markets in Financial Instruments Directive (Mifid) and the RDR here in the UK.           

“Europe views the UK as an experiment.” There is a danger that we are currently moving towards something which could prove costly, complicated and require further engineering two years down the line, says Ellis.

“The latest rules from Mifid are, in some respects, counter to those the FSA are proposing. Brussels-based regulation is more powerful and become more influential than what is produced by FSCA and is counter in some parts to what the FSA has tried to implement.”

There is the added problem of the industry not benefiting from consumer feedback enough. “Investors are moving, while the industry is moving in its own direction. The supply side bears little relevance to demand side, particularly considering investor appetite for platforms.”

These ongoing complications are already creating problems for managers. Ellis indicates he would consider adding further commission free share classes but not until the paper comes out in its final version. “What’s the point of building plans until you know what you are building towards?” he asks.

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