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So far so good when it comes to RDR

30 October 2018Jonathan Faurie
Lizl Budhram, Head of Advice for Old Mutual Personal Finance

Lizl Budhram, Head of Advice for Old Mutual Personal Finance

On 18 October, FAnews published a newsletter that discussed the Phase I and Phase II implementation of the Retail Distribution Review (RDR).

 The newsletter generated a lot of interest among our readers with one saying that the newsletter was timeous bearing in mind the changes that are taking place in the industry. 

We spoke to Lizl Budhram, Head of Advice for Old Mutual Personal Finance, to gain an industry perspective on how the RDR changes are impacting the industry. 

Key focal areas

RDR has caused some measure of trepidation in the industry with some financial advisers worrying what the future had in store for them. 

On the other side of the coin, RDR has also added significant value to the industry in that the nature of financial advice has been formalised in ways that have never been seen before. 

Phase I of RDR introduced class of business training, product training and continuous professional development (CDP) requirements which many industry role players have said is a breath of fresh air to the industry. 

“Several advisers have the above elements in place in their business already, so meeting the requirements set out by the Financial Sector Conduct Authority (FSCA) will not be a problem,” said Budhram, adding that advisers who have not yet met the requirements set out by the FSCA have until 2019 to do so. 

She added that there has also been a lot of changes with regards to how the FSCA interacts and communicates issues with the industry. 

“The industry is still negotiating with the FSCA on a number of issues. This is being done through discussion papers and input that the industry provides to them. Ultimately, both parties are committed to managing the changes brought about by RDR and making sure that these changes benefit the industry and the clients that we serve,” said Budhram. 

Still some nervousness

Budhram was very complimentary in the way that the FSCA implemented RDR. She pointed out that the phased approach is giving the industry some sense of calm that they will not be overwhelmed as there are still some issues that are sensitive in nature. 

“There still needs to be some discussion on adviser categorisation going forward. There is currently a great debate in the industry with regards to this. One of the proposals on the table is that tied advisers will be referred to as product supplier agents. There is a lot of resistance to this from the industry because advisers do not want to be seen as product pushers or product sales people. They have been painstakingly working very hard for clients not to see them in this way,” said Budhram. 

There is also a debate with regards to independent advisers. Budhram pointed our that there are two possible categories on the table and that the use of the word independent in their job title still needs to be determined. 

Changing focus

Initially, there was a lot of concern within the industry that RDR would cause unintended consequences which would ultimately become very detrimental. One of these fears was that advisers would begin to focus on providing financial advice to clients who could afford to pay for continued engagement. This would create a massive advice gap in the industry as not everybody would be able to afford this. 

“The above situation was very much the case when RDR was implemented in England. South Africa is in the very fortunate position that it can learn from the mistakes that occurred in international markets,” said Budhram. 

She added that assuming that advisers would only focus on clients who could afford to pay for continued engagement is premature. “If we look at the actuarial modelling when it comes to the final recommendations on the lower income market, the FSCA has acknowledged that fees will not be wholly appropriate in this market and that some form of commission will have to come into play. This still needs to be finalised by the FSCA and will be communicated to the industry,” said Budhram. 

Focus on communication

One of the positive aspects regarding the implementation of RDR is that the FSCA is going to great lengths to communicate with the industry regarding changes that affect them. 

“The FSCA has learned from its past experiences. When the FSCA made changes to FAIS Fit & Proper Requirements, the legislation was not clear with regards on how it will impact all categories of advisers. This created a lot of confusion as to who would comply with what. The industry then contacted the FSCA and asked for clarity, which came very late. The industry and the regulator needs to make sure that when legislation is promulgated, it is clear and that if there are any questions, they can be answered and clarified within the ambit of a particular Act. Currently, the FSCA is trying to live up to these expectations,” said Budhram. 

The fears that the industry used to have regarding RDR have not come to pass. This does not mean that it will not come to pass in the future, but the fact that the FSCA is trying its best to prevent this from becoming a reality is encouraging. 

Editor’s Thoughts:
If anything, the phased implementation of RDR is an example of how the industry and the regulator can work harmoniously to ensure the successful implementation of regulation. What have your experiences with the RDR roll out been? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Kobus Kleyn, 30 Oct 2018
I am not certain where the CPD falls in or under which of the 55 RDR proposals, but a very good article in general and it talks to a couple of the biggest concerning issues under the advisor categories and advise gaps. Communication is also critical and great to see the FSCA not pushing deadlines but rather consultation. Thanks Jonathan!
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