Why value is key to success in a post-RDR world

Lizl Budhram, Head of Advice at Old Mutual Personal Finance.

On the importance of a future-fit, value-led advice process.

Within the current economic and legislative environment, demonstrating value as a financial adviser has become imperative. The Retail Distribution Review (RDR) is expected to put adviser fees under customers’ microscopes and technological trends such as robo-advice and shifting consumer behaviour requires advisers to reinvent their customer relationship model in order to succeed.

The world of retail investment advice is continuously changing in South Africa, and as the jurisdictions around the world continue to shift, Lizl Budhram, Head of Advice at Old Mutual Personal Finance, believes the landscape will continue to evolve. “RDR is an ongoing process and will bring about a significant change in the remuneration structure. Under this model, financial advisers will no longer be compensated based on product sales, but rather for the advice provided to their customers,” she says.

“Financial advisers will therefore need to ensure that the advice offered appeals to the customer and, most importantly, adds value to their lives. Customers will need to decide whether the advice they receive is good quality and worth paying for.”

Budhram explains that the new regulations will demand a rethink around the way the industry views the advice process. "Providing financial advice and recommending or proposing financial products or solutions should be clearly distinguished from one another,” she explains. “There is value to be demonstrated in both parts of the process.”

The advice component demands a true understanding of customers in a changing environment and the ability to be relatable and relevant. The solution relates to the adviser partnership and the subsequent ability of advisers to source a best of breed, holistic suite of products from trusted, industry-leading providers. “This ensures that customers benefit from the peace of mind delivered by a trusted brand, as well as the economies of scale inherent in comprehensive product suites,” she says. The chosen set of products needs to be viewed holistically so that they can deliver financial wellness over customers’ lifetimes.

According to Budhram, understanding the changing customer is central to demonstrating value during the advice process. “According to the 2017 Old Mutual Savings and Investment Monitor, younger investors, when compared to previous generations, list different requirements when building a personal relationship with advisers. This may present an additional challenge to the adviser’s existing business model, which is another reason why leading with value is so important,” she says.

However, the changing consumer and legislative landscape presents both a challenge and an opportunity. Budhram explains, “We agree with the view of many industry experts that financial advisers will continue to succeed, despite the social and industry shifts. This is because advisers are able to cultivate a human relationship with their customers. They are able to guide them through difficult times, explain financial terms which may not be fully understood, and provide holistic advice that takes into account their dreams and goals – all of which online services are unable to perform.”

Regarding the solution stage, Budhram highlights the fact that having access to a wider variety of products does not necessarily come into play in the adviser’s value proposition in a post-RDR world. “The delivery of value during the discussion about solutions depends on the partnership between the adviser and product/service provider.”

Budhram concludes that success in the advice landscape will come down to being able to separate the two parts of the customer value proposition, and deliver value in each. “Advisers who are able to firstly demonstrate understanding, relevance and empathy with their customers during the advice process and then, secondly, deliver on managing a holistic financial plan are the ones who will be future-fit for the new advice landscape.”