It also probably represents the biggest change in any individual market globally, and the rest of the world is eagerly awaiting the outcome.
It therefore comes as little surprise that the UK advice market has taken more than a little time in the lead-up to RDR, and even well into 2013, to adjust to this Brave New World.
Some advisers were early adopters, already having business structures closely aligned to a fee-based model. Others, though, seem to have underestimated the scale of the transformation necessary in their operating practices to be effective and compliant under RDR, and have found they are making the adjustment after the event.
Offshore impact
In terms of RDR’s impact on the offshore bond market – where it has been something of an elephant in the room – a few clear trends emerged toward the end of 2012, and have continued on into the first half of 2013.
The numbers for 2012 show that despite the specialist nature of offshore products, the sector is not immune to general investment sentiment. With the decline of with-profits and capital protected products in recent years, the offshore proposition has reverted to its core appeal: asset diversity, with a strong equity link, in a tax mitigation wrapper.
It is my view that RDR will be good for offshore bond sales for two main reasons:
1. Most advisers promoting offshore bonds were already on a fee or quasi fee basis (commission sacrifice) prior to RDR. So they had already gone through any ‘cold turkey’ adjustment to the fee-based world, and therefore are better positioned for post-RDR business.
Those advisory groups that are struggling most with RDR are the ones that were taking close to the full commission levels under the old regime.
2. Offshore bond customers are likely to be the highest value customers for most advisory firms, a fact that was sometimes obscured under the commission regime, where the fee or commission income from offshore sales could have been used to subsidise the advice given to lower value transactions, such as ISA and term assurance. The value of offshore bond customers is accentuated under RDR, so there is now more incentive for advisers to not only seek them out, but to retain them on a long-term basis.
Wider appeal
At the same time, there are a number of additional reasons why offshore bonds are arguably more important to UK advisers than they were two to three years ago.
Tax rates have generally increased, for example, so there is more motivation to manage tax efficiently, via HMRC-approved vehicles such as offshore bonds.
Also, interest rates have been at close to base levels for nearly five years, suggesting equity-linked investments need to play even more of a central role in client portfolios.
When market confidence returns, all the inherent reasons why offshore bonds make sense for specific categories of clients will come back to the fore, and the sector will move forward again.
RDR might be the proverbial elephant in the room, with providers, advisers and industry commentators alike hedging their bets on possible outcomes and the impact on the industry over the longer term.
However, based on the market’s reaction to previous regulatory changes, what we can say with certainty now is this: although there may be some fallout along the way, the advice sector will make the adjustment, and life will go on.
Simon Willoughby is head of proposition for AXA Wealth International
Click here to read a recent ‘life trends’ profile with Simon
