Recent figures released by the Investment Management Association (IMA), the UK fund management industry’s trade body, showed that in the first three months of 2013 following the introduction of the Retail Distribution Review (RDR) net retail sales fell to the lowest level in five years.

Tom Rampulla, head of Vanguard in Europe.

While many active fund management groups may feel reason to complain, the introduction of RDR has proved a boon for providers of index-linked investment products such as exchange-traded funds (ETFs).

Indeed, Tom Rampulla, who is head of Europe for Vanguard, a global leader in low-cost index funds and the world’s third largest provider of ETFs, has come out to defend RDR.

In a statement, he remarked:

“The RDR was designed to reshape the UK retail market in favour of the customer. To us, these latest figures show that the new regulation has begun the difficult job of transforming the market, and is therefore working.

“We have always posited that once full transparency and a conflict-free business model are in place, advisers will have the tools necessary to focus entirely on providing the best solutions for each client.

“As a result, many advisers are now offering low-cost passive solutions for the first time. As a low-cost provider, we’ve seen a large jump in flows this quarter, due to both a 100% increase in adviser partnerships since this time last year, and pent up demand from platforms that have only just added our funds to their line-up.

“In the long run, we expect the UK to be more reflective of the US model, where  the fee-based compensation model now accounts for roughly two thirds of the adviser market and passive assets now account for about 30% of the market.

“It is also important that these figures are taken in context. We must not forget that flows in Q4 2012 were extremely strong.  What we are seeing is the beginning of a brave new world of low cost and transparency. We believe that the RDR has already made a real difference in the options available to advisers and their clients.

“We witnessed downward pressure on fund fees in the run-up to implementation of the RDR, but there is still a long way to go if investors are to fully benefit from the fantastic opportunities presented by the new regulation. With investors now able to keep a closer eye on cost and value, advisers have to provide strategies that will reliably fulfil investor needs.

“We’re seeing flows into index funds accelerate dramatically, precisely because index funds can provide a low-cost way to gain predictable exposure to a wide variety of market benchmarks. We expect this trend to grow under RDR as advisers increasingly focus on helping their clients to achieve their investment goals, rather than the difficult task of attempting to pick tomorrow’s winner.”