RDR proposes positive changes for the consumer

Jaco van Tonder, Sales Director at Investec Asset Management.

Jaco van Tonder, Sales Director at Investec Asset Management, discusses why the RDR paper is positive for consumers.

Investec Asset Management is pleased with the well-researched and well formulated Retail Distribution Review (RDR) proposal document distributed by the Financial Services Board last week.

The document contains far-reaching proposals which will have a significant positive impact on South African consumers and end-investors. Some of the more prominent items are:

• A complete banning of product commissions on all savings products in exchange for advice fees that the customer agrees to;
• More stringent rules around surrender or termination penalties on financial services products;
• Restrictions on up-front commissions for most life insurance products; and
• Banning the industry practice of paying rebates between fund managers, investment platforms and financial advisors.

These proposals will have a significant impact on “churning” – the practice of clients’ financial services products being constantly switched from one product provider to another. The banning of rebates will also significantly simplify investment products and will make product and cost comparisons far simpler for the end-investor.

We are very supportive of most of the suggestions in the South African RDR paper, as they are in line with international regulatory developments in other jurisdictions where we operate. As a result of our international experience in this regard, Investec Asset Management has already implemented a number of the suggestions in the paper in our business:

• We converted our domestic investment platform to clean share classes eighteen months ago;
• We have actively promoted the usage of the clean share classes of Investec Collective Investments through third-party investment platforms; and
• We have recently converted our offshore fund platform to offer only clean share classes for the entire offshore fund range.

As a long-standing supporter of independent financial advisors (IFAs), we are also pleased with the regulator’s appropriate recognition of the importance of independent financial advice and their efforts to create a healthy and vibrant IFA market for the benefit of consumers.

There are still a number of areas where the regulator has requested input and suggestions from the industry. We will be engaging with our clients and other key stakeholders in this regard to formulate our response.