While these rules remain in the handbook, I am not aware of any advisers who have had their research process challenged over the past decade, and so it would be easy to end the story of this element of the RDR with the notion that advisers were overly concerned about a well-intentioned rule.
However, in reality the outcome is far more interesting. When faced with the challenge of the increased liability and operating cost necessitated by a whole-of-market investment proposition, many advisers started to rethink their businesses.
In doing so, they moved away from a focus on being the investment expert – a value proposition that had become increasingly common over the previous decade – and towards a more holistic approach to financial planning.
Initiating change
This transformation of the adviser business was supported by a market environment that favoured low-cost passive portfolios, rather than the “star” active managers that dominated the investment landscape in the early years of this century.
While the forgoing is clearly a gross simplification that will lead some readers to exclaim that they had stopped building portfolios more than a decade before the RDR, for many more the RDR initiated a change in financial advice that is still gathering momentum a decade on.
This change is most obvious in the growth of managed portfolio services, standardised risk profiling, and falling investment costs. This has benefited end investors both directly and indirectly, as a trend towards outsourcing has created more capacity for advisers to spend time with clients.
Given the value an adviser can provide by coaching clients towards better planning and decision-making, this increase in the time available for client interactions can raise the probability that a client will reach their goals.
But it should not be lost on us that rules designed to encourage advisers to spend more time researching and selecting investment products has had the opposite effect.
Alongside the impact that outsourcing has had on clients and advisers, the imperative to be “whole of market” has changed the investing landscape in the UK.
As advisers have withdrawn from choosing investments, the composition of the fund selection community has changed, with greater concentration among those choosing funds. Yet despite this, there does not appear to be a marked increase in the concentration of assets.
Morningstar data show that approximately 34 per cent of UK fund assets were concentrated in the top five fund companies at the end of 2021, compared with 32 per cent at the end of 2011.
