The Retail Distribution Review (RDR) discussion paper published by the Financial Services Board (FSB) on 7 November 2014 proposes far-reaching reforms to the regulatory framework for distributing retail financial products to local consumers.
The proposed changes set out to address poor consumer outcomes by redefining critical concepts in the intermediated distribution space as well as determining fair levels of remuneration for advisers in the investment, life and short term insurance disciplines.
It is difficult to determine the impact of the regulation at this early stage except to say that most stakeholders in the financial service sector will be affected in some way. This is why the Financial Intermediaries Association of Southern Africa (FIA) – an organisation that represents the bulk of the country’s risk and financial adviser – is concerned about the volume of negative comment that followed the paper’s publication.
“Industry commentators and reporters have jumped on the bandwagon to proclaim on the impact of proposed changes to the financial services landscape despite the comment window for the new legislation being open until 2 March this year,” says Arnold van der Linde, President of the FIA.
“Our members have been inundated with offers from so-called experts to advise them on how to reengineer their practices to survive the imminent legislative onslaught – before the ink on the RDR discussion paper has even dried!”
Proposals contained in the RDR paper cannot be viewed as fait accompli until the regulatory process runs its course. And the next step in the current process is for the industry – at the regulator’s invitation – to comment on each of the RDR proposals.
“Until such time as these comments are discussed and considered there is nobody, not even the regulator, who can say with certainty what the eventual legislation will look like,” he says. “What we can comment on is that it will be incredibly difficult for the industry to respond to the complex set of RDR proposals within the tight deadline allowed by the regulator – and in this regard the FIA will have no choice but to join other industry associations in requesting an extension.”
The RDR discussion paper is the most comprehensive indication of what the regulator intends for the financial services distribution environment seen by the industry to date. “We welcome the document because it puts an end to the rumour and conjecture that arose out of the regulators apparent inertia on RDR,” says van der Linde.
He observes that many industry stakeholders had no choice but to piece together the regulator’s thinking on the important remuneration issue from snippets of information provided at industry functions over the preceding 18 to 24 months.
Many believe that the FSB’s lengthy deliberations over RDR can be ascribed to the complexities inherent in the financial services distribution environment. The hope is that enough consideration has been given to the unintended consequences associated with interference in a free market as well as the negative impact of similar regulatory regimes offshore.
“Regulatory uncertainty is not only damaging to the industry, where stakeholders find it increasingly difficult to make investment decisions, but to the very consumer that it aims to protect,” he says. “But now that the proposals are out in the open the industry can respond appropriately and intermediaries can once again plan for their futures.”
The festive season ‘break’ allowed the industry to read and re-read the discussion paper and reach informed conclusions about its likely impact. It is now up to industry to tackle the regulator on those areas that might have negative consequences.
The FIA’s objective in its engagement with the regulator will be to ensure the sustainability of financial advice. We will inform our interaction with the regulator through wide consultation with our membership and also draw on experiences in other markets and economies,” says Van der Linde. “It is our job to remind the regulator that the exit by any financial services provider due to constraints introduced by regulation results in fewer choices for consumers.”
RDR sets out to right wrongs where they exist, to create opportunities where the consumer so desperately needs them and to leave enough space to ensure a healthy and thriving industry that is empowered to meet the consumer’s needs. Financial advisers and good financial advice will be vital parts of this utopia.
Van der Linde concludes: “The FIA represent members in every category of insurance. It is our duty to engage the FSB to make sure that our client (the advisor) and their clients (the consumer) emerge from RDR with a better future… We must make changes to ensure the sustainability of financial advice-giving, offer wider protections to consumers and maintain healthy free market competition.
“Members of our various executive committees have been working on the RDR paper since it was published. Our committees coordinated by our Board are busy analysing, testing, taking advice and will be ready to start a very interesting phase in reducing the current ideology to a workable legislation to ensure a better consumer insurance environment.”