Distribution through IFAs hits 85% and RDR could fuel more sales

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FSA's retail distribution review will impact UK IFA market

The proportion of investment products distributed through the UK's independent financial advisers (IFAs) is predicted to hit 85% this year, according to a report from global research company Deloittes. With the UK Financial Service Authority's Retail Distribution Review (RDR) being implemented in 2012, advisers will be required to advise on structured products but this will bring its difficulties, as was discussed at the Future Value Consultants conference in Birmingham.

"RDR is having its impact. It takes time for you [the advisers] to work out what you will do and how you will reorganise your business," said Zak di Mariveles, managing director, head of equity derivatives and structured retail products at RBS Global Banking & Markets in London. "Structured products are here to stay and RDR is supporting that."

One Worcester-based adviser commented that he did not like the RDR as it means that investors will be hit by upfront fees rather than commission being taken out of their returns, a model that investors have become accustomed to. He said he does not like or sell structured products, mainly because of their fixed term, but added that he was interested in the idea of structured funds.

Structured funds are where the UK market is heading as investors look for liquidity with added capital protection, according to the providers attending the conference. "We think we need to question the boundaries between structured products and funds to wrap protection around funds," said Roland Kitson, London-based director at the Barclays Wealth Intermediaries business.

However, structuring any product with full upside participation and full capital protection is very difficult in a low interest rate, low volatility environment. But investors want protection and concerns about counterparty risk means investors are wary of structured products.

The providers agreed it is difficult to measure the position of an issuer as credit default spreads and ratings can take time to react to events. One IFA responded to this by questioning the level of guidance given to advisers. "I have never sold a structured product and I am quite happy to spend another 10 years without selling structured products. I am disappointed that you are saying the FSA says this and we have to do that, but you need to give [us] more," he said.

However, IFAs are now aware of these issues and most have an increased understanding of structured products. "We are seeing a marked increase in the level of understanding from you," said Nev Godley, vice-president of the retail structured products distribution team at Morgan Stanley in London. "We are getting more questions about the ‘what ifs' and things such as counterparty risk. IFAs are more clued up."

 

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