In its 16 July report the Select Committee notes there are concerns RDR may have a negative effect on the ability of some private client businesses, wealth management firms and banks to provide a full service to HNWIs. This is because HNWIs tend to be more mobile than retail clients and as RDR only affects UK activities, clients could either face a more expensive UK regime or have limited access to products.
Limited range
According to a submission from JP Morgan: “We believe there is a considerable risk that the majority of non-UK funds will not restructure their products in line with RDR and clients are unable to invest in such funds. This will have the effect of limiting the range of products available to UK-based investors.
“Alternatively, funds could retain such fees in relation to UK clients, thus making the funds more expensive for a UK client than a non-UK client. As this regulation will affect UK clients only, UK-based private banks will need to apply different fee charging schedules to UK clients to those outside the UK.”
It goes on to say that when asked, the FSA responded to industry concerns by pointing out firms could "opt up" certain clients to ‘professional’ status, eliminating the need to apply the RDR standards. However, the counter argument by firms is that this is not always possible due to other EU-rules.
No research
When the FSA was asked about the debate, its responses to the Committee were unclear. On the one hand the FSA argues it is not obvious how the high net worth model would be adversely affected by RDR, yet it also admits it hasn’t done any specific research in this area.
As such the Committee wants the FSA to review the situation immediately and highlight whether or not modification of RDR might be possible, saying: “We recommend the FSA examines how to allow HNWIs, as determined by the FSA, the opportunity to opt out of the requirements of the RDR should they wish. This should also mean they opt out of most or all protections that retail customers receive.”
