Reforms in the U.K. have led to greater emphasis on product suitability for clients thanks to a fee-based structure, enhanced professional standards and greater clarity on advisor status, according to Nick Blake, head of retail distribution for Vanguard Asset Management Ltd. in the U.K.

Blake spoke about the Retail Distribution Review (RDR) changes implemented in 2013 at the Canadian ETF Association’s annual conference in Mississauga, Ont. on Wednesday.

Abolishing a commission model of payment in order to remove bias was most controversial aspect of the RDR, Blake says.

But the results were definitive in terms of products being offered to clients.

The use of investment products that pay high commission fees decreased but “sales of no-load products have shot up through the roof,” says Blake.

The removal of commissions also produced a greater emphasis on product price and suitability for the client.

Regarding the question of whether the RDR has brought down costs for clients, Blake says costs are about the same. Although fund managers have received pressure to reduce their fees and have done so by about 10 basis points, there has not been any downward pressure on the cost of advice.

Professional educational standards have also dramatically improved thanks to the RDR, according to Blake.

Advisors are required to study for professional qualifications that were deemed appropriate under the RDR. In 2010, approximately one-fifth of advisors were sufficiently qualified. By 2012, that number had jumped to about 95% of advisors who had either received their qualification or were studying for it.

Blake noted after the implementation of the RDR, the number of advisors in the U.K. dropped. One major reason, he said, was simply that advisors were not fulfilling the educational requirements of the RDR. He said that after the initial drop, “advisor numbers have come back.”

Another issue is the status of advisors. U.K. advisors are either independent, which means they offer a full range of investment products, or restricted, meaning their product selection is more limited.

“Most advisors, even if they called themselves independent, were actually running some sort of restricted practice,” says Blake.

Independent advisors will provide their clients with access to products from multiple product providers.

The result is that two-thirds of advisors have left the independent channel and identify themselves as restricted, says Blake. Although they are still required to be fee-based, they work from a restricted list of products.

The symbiotic relationship between product manufacturers and advisors who gave those manufacturers access to clients has been affected: “What we started to see in the U.K. is that there are manufacturers who are panicking because they don’t have access to distribution,” says Blake.

The result is manufacturers trying to buy large groups of advisors.

“The trouble with independent advisors is they’re independent and they don’t like getting corralled,” says Blake.