The Financial Intermediaries Association of Southern Africa (FIA) welcomes the long-awaited publication of the Financial Services Board’s (FSB) Retail Distribution Review (RDR).
The discussion paper, released on 7 November 2014, sets out to redefine a number of critical concepts in the intermediated distribution space as well as determine fair levels of remuneration for advisers in the investment, life and short term insurance disciplines. It proposes far-reaching reforms to the regulatory framework for distributing retail financial products to local consumers that are aimed at addressing poor customer outcomes in the current system.
“We have been keenly awaiting the RDR document since it was first proposed some years ago,” says Justus van Pletzen, CEO of the FIA. “Although there have been many delays in its publication we are cognisant of the complexities the regulator has had to deal with in ensuring that the discussion paper considers all possible scenarios in the financial advice space.”
The FIA has met with both the FSB and National Treasury on numerous occasions and has shared its views on the role of up-front-commission, as-and-when commission and trail fees in the remuneration models for financial advice. Binder regulations and the appropriate levels for compensation for binder functions in the short term insurance environment have been extensively discussed.
The trade association, which represents the interests of more than 14000 key individuals and representatives countrywide, also communicated to the regulators the likely impact of changes in remuneration structures on broader social objectives such as access to financial services product and national savings.
A precursory viewing of the document suggests that the FSB has been mindful of the requirement for differentiated fee structures on products that are marketed to low income consumers. It is also clear that the FSB will level the playing field between adviser and product supplier in ensuring fair outcomes for consumers.
The RDR Executive Summary notes: “Key structural changes include placing greater responsibility on product providers for ensuring the delivery of fair customer outcomes through their chosen distribution channels…”
“There are some early signs of unhappiness from various sectors with regards the proposed caps on insurance binder fees payable to multi-tied intermediaries (binder holders) per binder activity,” says Van Pletzen. He adds that these issues will be tackled as the FIA responds to the 50-plus proposals in the document.
Lessons learned from RDR implementations in other financial markets appear to have been taken on board. “In our interactions with the FSB in recent months they have acknowledged the negative impact on financial advice of RDR in the UK,” says Van Pletzen. “We believe that the regulator is committed to ensuring sustainable financial advice for local consumers following the RDR implementation.”
The FIA will now begin the process of unpacking the document and formulating a response for the public engagement that follows. “The FIA has already established RDR committees to unpack the issue from a life and short term insurance perspective,” says Van Pletzen. “Our response to RDR will be informed by our members via these workgroups and our executive committees under the Employee Benefits, Financial Planning, Healthcare and Short Term Insurance banners.”
“RDR has already been widely debated by each of our executive committees through 2013 and 2014, so we have a good idea what our members want from the eventual solution – but now that the regulator’s thoughts are in black and white the real work begins!”