Actuarial profession rolls up sleeves to help with RDR

More than 50 actuaries from various actuarial fields have responded to a call by the Financial Services Board (FSB) for interested actuaries to assist the Retail Distribution Review (RDR) project team appointed to review and assess the comments and proposals received on the RDR paper.

Niel Fourie, public policy actuary at the Actuarial Society of South Africa, says there has been an overwhelming response from members prepared to volunteer their time and actuarial expertise to the RDR project in the interest of creating a sustainable distribution landscape that will benefit consumers. The actuarial engagement process with the FSB will be coordinated by the Society.

The FSB’s RDR project has six work streams:

• Adviser categorisation;
• Investments;
• Long-term risk products;
• Short-term insurance products;
• Sales execution and other intermediary services; and
• The low-income market.

Fourie says the Society supports in principle the FSB’s intention to support the Treating Customers Fairly (TCF) outcomes by enhancing the professionalism and accountability frameworks of the distribution landscape through regulation.

“We back the more proactive, interventionist and outcomes-based regulatory approach mentioned in the RDR proposal document and echoed more recently by the Regulator. This is a significant change to the more reactive compliance-based regulation that has applied until now.”

However, says Fourie, implementing this new approach will require an intimate understanding of the companies to be regulated as well as their services.

“Our members who will be working with the FSB on the RDR project have an in-depth knowledge of the workings of the savings and investment industry and will be able to assist with establishing unambiguous guidelines essential to ensuring a consistent standard and approach in an environment where the Regulator will be required to exercise judgment to an increased extent.”

Fourie says the Society believes that in order for the FSB to shift its focus to measuring actual outcomes more focus needs to be placed on leveraging off existing technologies to create and analyse data reflecting individual customer outcomes based on agreed reporting standards.

This approach could, for example, be used to report on churn ratios at adviser level and to interrogate advisers’ financial advice frameworks where churn seems to be abnormally high.

“Actuaries have the analytical skills needed for big data processing and we would like to work with the FSB to apply these skills to measure outcomes and the success of interventions,” says Fourie.

The Actuarial Society also supports the RDR principal for “low advice” standards, which aims to remove some of the barriers to providing advice to low-income customers. The RDR proposal limits “low advice” distribution models to specific products.

Fourie says successful implementation of these proposals will, however, require that companies make available simple and relevant products that do not require high levels of advice.

“Actuarial input will be invaluable when it comes to the design of sustainable low advice parameters and product features,” according to Fourie.

The Society also believes that distribution of credit products should be included in the RDR proposals since this is probably one of the areas where the risk of abuse is the highest.

Fourie points out that while the RDR proposals provide a solid accountability framework, they run the risk of introducing significant complexity in some areas.

“Therefore, given the nature and extent of the changes proposed, the Society would like to see a phased implementation, focusing initially on the areas where the risk of abuse is the highest. This could also minimise the risk of unintended consequences.”