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RDR: a time for cool heads and a pragmatic approach

13 September 2016 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

“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.

Comments

Added by Geo Heyns, 06 Oct 2016
I agree with Anton, In my view prospect clients still percieve financial advice as something that I have to buy, as apposed to something that I can learn to understand. I think every FA should ask him/her self ... how much have walked the journey with my client today.
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Added by Kobus, 06 Oct 2016
Great to see round table discussions like this one happening with some key players involved from various financial stakeholders and people who know the profession very well and who work with thousands of advisors at operational level.
Such round table events and articles like this one by FANews and Jonathan Faurie go a long way to create awareness for both the financial advisor and financial consumer.
RDR is the boost for certain to professionalise our industry into a profession and as the industry mature into a profession it will become much more self-regulatory ( and the regulator will simply be observing holistically as there will always be chancers out there) and operate under a free market enterprise system.
There is no doubt in my mind that many FSP's and brokerages are moving from product base advice to advice based products and CRM with an absolute TCF outcome vision. Well done Johan Minnie, Jay Naidoo, David Kop and Gerald Mwandiambira for your contributions.
The more awareness we create the more all stakeholders will benefit from RDR which will come into effect in 2017 with phase 1 implementation and the rest over 2018 and 2019. Embrace RDR and become RDR orientated now before your get left behind.

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Added by kenny, 13 Sep 2016
When is this rdr supposed to come into place?
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Added by Old Timer, 13 Sep 2016
More bland statements with zero practical application from senior people who have no direct contact with clients. RDR or no RDR the banks and major product suppliers will carry on bullying their sales force into selling their products.
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Added by Edsaid, 13 Sep 2016
"Fundamentally, nothing has changed. The advisor is still on comm." - Basically RDR is a risk transfer mechanism for the insurer's risk of default, to the broker by way of reduced comm upfront. A big departure from past practice.

"Skip the readiness, focus on the need" - Basically, let's get this thing implemented ASAP, regardless of how it affects real people who add real value for the client and insurer. A lose-lose scenario.

"Advisors are seen as product pushers for companies" - Of course. There's a reason an advisor chose to work with specific insurers. The client should know that if they talk to you what the brand of the product will be.

"Financial services a grudge purchase" - Let's not insult the population's intelligence either. They wouldn't buy your product if they didn't see clear advantages in it for them.

NO RDR FOR ME PLEASE!
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Added by Anton, 13 Sep 2016
I find it interesting that, with few exceptions, the financial services "industry" needs the regulator to enforce RDR to change advisor behaviour and ensure fair outcomes for clients. We should not need a regulator to do this for us. True professionals should be doing this themselves. But therein lies the rub: To a very large extent we have not changed from a sales driven model to an advice model. Not even close.
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Added by Skylimit, 13 Sep 2016
What incentive is there for me to stay in this business?

I already do a lot of extras for clients now I am going to have to start billing them for this as well under the envisaged system.By the way who do I bill now to sort out clients death and disability claims...the FSB?
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