Selection under threat from regulation – Fund Forum

Fund selection could be set to “step back 20 years in regards to the end client” because of regulatory changes occurring in Europe, the US and Asia, according to fund buyers and managers speaking at the Fund Forum event in Monaco yesterday.

Fund buyers agreed the regulations in the wing “will not mean better performance from products”, although they would make the fees and possibly workings of funds more transparent.

Laurent Auchlin, head of open architecture at Lombard Odier Darier Hentsch & Cie, doubted whether working under the new regulations would allow what he said was “the mission of bringing better performance and good products to the client”.

He was supported by Michael Lodhi, managing director of the Spectrum IFA Group, who added it was important legislators first understand an industry – which he doubted in regards his own – before passing laws that would change it. He said Brussels “struggled” with understanding the industry he worked in.

However, Adrian Weiss, director investment products and advice at Citi Consumer Group, said the industry had to shoulder some of the responsibility for some of the regulatory changes happening. Some of the regulatory developments in Europe would have “positive elements,” he said – clients understanding better what they were paying for was good, as was forcing client advisers to be better qualified, and for distributors to provide “quality advice” if they were being paid for their knowledge, for example.

But he added legislation could also bring “unintended consequences” and greater transparency did not mean less risk. And this did not accord with the regulators’ goal, as he viewed it, to achieve better investor protection. He noted the Retail Distribution Review in the UK – being mirrored to various degrees in some other European countries – would result in some client groups not receiving any advice, as panellists agreed “clients do not like to pay for it in the first place”, and some would try to run investments alone.

Again, though, they concurred the industry was partly to blame for clients seeing “advice as something you get for free”. Under RDR the industry would have to reverse that mindset, working on a fee-basis rather than giving retrocessions to providers.

Jean Francois Hautemulle, head of fund selection at Unicredit Private Bank, said top-end clients did not mind paying for advice, but adding this fee to other charges could cause discord.

“It is not a question of paying for advice, it is a question of paying for advice on top of everything else. Getting a fee but not retrocessions at the fund level is very acceptable for clients,” one panellist said.

One colleague on the panel said clients often felt “banks are making too much money anyway, and as an industry we have probably failed in the past to explain that advice is of value and not for free. If they go to a doctor or a lawyer, they pay, but when they come to a bank they think the bank is making money already.”

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