A safer financial sector to serve South Africa better

Andrew Bradley, chief executive of Old Mutual Wealth.

The proposed Retail Distribution Review (RDR) paper proposed by the Financial Services Board (FSB) is a bold step in treating customers fairly (TCF), which Old Mutual fully supports. The RDR discussion paper states that implementation will happen in phases and the final legislation will take effect mid-2016, with better TCF practices that will ensure a more sustainable financial services sector.

The RDR mainly seeks to deal with inherent conflicts of interest in the relationship between financial services product suppliers and financial advisers and how financial advisers are remunerated.

The proposed changes are perfectly aligned with the new approach to wealth management adopted by Old Mutual Wealth. An advice-led approach helps to improve the value of advice offered to clients.

Andrew Bradley, chief executive of Old Mutual Wealth (OMW), says: “The RDR is substantially based on the UK RDR and Australian FOFA, but adapted for our South African market. When we launched Old Mutual Wealth last year we positioned it in anticipation of RDR legislation. We have learnt from our colleagues in the UK and associates in Australia, who have implemented the legislative changes successfully.

“Client-centricity is ingrained in our DNA, and RDR is simply a legislative step to ensure that we provide clients with quality advice to achieve their financial goals. From the UK experience, we learnt that one outcome of the review is that consumers recognise that financial advice is a valuable service worth paying for.”

Old Mutual Wealth offers a clean pricing model and complete transparency. Old Mutual Wealth financial advisers provide clients with integrated wealth planning process that enables them to determine how much is enough to help them reach their lifestyle dreams. The financial adviser acts as a financial coach and remuneration is based on a negotiated fee-based approach.

“It is encouraging that steps are being taken to further establish financial advice as a service in its own right rather than something tied to product purchases. Advisers have to redesign their value proposition to show clients the value they add in a new fee-based context.”

Bradley concludes: “Adjusting to the new environment will provide a competitive advantage for those financial advisers who make the changes work for them by increasing the demand for their services. Again, the international experience is instructive here: in Australia, financial advisers are the most respected professionals after doctors and dentists, according to the Australian Association of Financial Advisers (AFA). We could achieve the same levels of credibility in our country. The changes will not only benefit advisers and their clients but will also have a positive impact on the entire financial services sector.”

Significant benefits for clients include:

• Increased value of advice: advisers will have to clearly articulate their value-add in a fee-based world.

• Increased professionalism: The discussion paper divides advisers into three distinct categories: Independent Financial Advisers, Multi-Tied Advisers, and Tied Advisers. In addition, advisers can also qualify as Financial Planners, which will require additional adherence to standards and codes supporting professionalism.

• More transparent pricing: The RDR provides for pricing that is more closely aligned to the nature and quality of the service clients receive. It proposes benchmarks of fees advisers can negotiate with clients. The RDR will level the playing field with the removal of commission on investment products and prevent conflicts of interest.

• Greater sustainability: RDR supports a sustainable business model for advisers; a business with ongoing trail fees that is more sustainable than one that relies mostly on upfront commission.

• Increased trust: The RDR proposals are designed to give clients greater confidence in the financial services market. At the heart of the move from commission-based toward fee-based remuneration lies a desire to promote appropriate, affordable and fair advice and services.