RDR: a time for cool heads and a pragmatic approach

“Many clients in the industry either see the financial services industry as an industry that adds significant value, or as an industry filled with bad experiences. There is no middle ground when it comes to client’s feelings regarding this industry.”

These were the words of Johan Minnie – Group Executive Sales, Distribution and Bancassurance at Liberty – who opened a round table discussion regarding the value that the Retail Distribution Review (RDR) can add to South Africa.

Skip the readiness, focus on the need

Minnie added that when one looks at the internal psyche of clients, most clients see financial services products as a grudge purchase. “Clients think they will never die, that they will never get sick; and for the most part, that retirement is a long way away and that savings towards this do not need to be prioritised. Clients suffer from internal optimism about how life will treat them,” said Minnie.

Clients therefore generally have a negative view when it comes to financial services products because they don’t feel that it adds value to them today. Because of this, at times, advisers and financial planners are seen as product pushers who increase capacity at companies.

“RDR hopes to change this. So it is not a matter of whether South Africa is ready for RDR; it is necessary for it to be implemented in the industry. If we sit back and ask when we will be ready for RDR, we will never implement it,” said Jay Naidoo, Divisional Director of Distribution Transformation at Liberty.

Unique metrics

Another mistake we are making when it comes to RDR is looking at the implementation of RDR in other markets and making significant noises about the advantages and disadvantages that came as a result of it.

“South Africa’s dynamics are unique. We are dealing with a market that has largely not been exposed to financial products where clients have stretched incomes. For an income earner in households where they are supporting not only their family, but extended family as well, money needs to go a long way,” said Gerald Mwandiambira CFP, Acting CEO of the South African Savings Institute (SASI).

With this limited wallet, people need to know what they are spending their money on. Transparency is the key metric in this situation. But while we are dealing with stretched budgets, there is an intrinsic need within society to create wealth. The public has come to terms with this.

Society today

Naidoo points out that in order to understand the need for RDR, we need to understand the dynamics that drive the market. “Clients live in the world of instant gratification where they want to see immediate reciprocity. However, what they don’t understand is that a lot of the work that advisers and financial planners are doing today is efforts towards building a better future for them tomorrow. Look at how you engage with customers and show your value. They will need someone to guide them through the value building process.”

David Kop, Head of Advocacy and Consumer Affairs at the Financial Planning Institute of Southern Africa, says clients also need to be informed that nothing is really changing. Advisers were being paid in the past on a commission basis; but they were still being paid and it was the client that was funding this. So the status quo remains the same.

Financial enlightenment

While the majority of the South African public is a long way from achieving financial enlightenment, there is a general sense that there is a desire from the public to become more educated on the financial services industry. But whose responsibility is it to educate the public?

“RDR hands out a lot of responsibilities in the industry. One of these is that it places the duty upon insurers to embark on unbranded, non-product specific, education programmes where there is no product push. It is just an insurer telling the public about what products exist in the industry,” said Mwandiambira.

However, trust is never easily given away in the country and no matter how generic you make a campaign, there will always be sceptics thinking that the company is pushing a hidden agenda.

Is it the duty of the adviser or the financial planner? They already have a lot on their plate in terms of remodelling their business away from the perception of being product pushers. Can we now expect them to educate the masses as well? Kop says that there is an element of social responsibility within the financial services industry that gives back to the industry. Perhaps education is fulfilling this need.

But it is ultimately the duty of regulator, the Financial Services Board (FSB), and industry associations such as the FPI and SASI to embark on campaigns that educate the masses. There are strides being made in this area and perhaps RDR compliance is the missing piece to the puzzle.

Editor’s Thoughts:
This is not a simple issue. We are dealing with a very unique market and we are dealing with the livelihoods of key role players in the industry (advisers).  A lot has been said about unintended consequences in the past, let’s just hope that the FSB is aware that their actions can cause this. Cool heads and a pragmatic approach needs to prevail when dealing with this issue. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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