RDR - more than just a nip and tuck

Richard Rattue, managing director of Compli-Serve.

The Retail Distribution Review proposals released in November 2014 are so far reaching they can be described as a structural reform of the financial services industry, the largest in a decade, says Richard Rattue, managing director of Compli-Serve.

“RDR is ushering in the age of advice, in contrast to the age of pushing products.” For many intermediaries, this will mean restructuring their business models, he says. “RDR is a positive development overall, particularly as it does away with some unsavoury practices that have been part of the industry for far too long, at the expense of the consumer.”

He says that almost everyone in the industry will be affected in some way so it’s important for intermediaries to get to grips with the proposals and align their business models and practices accordingly. “While the proposals are still in draft form, and no doubt various industry bodies will push back on some of them, they should be taken very seriously.”

According to Rattue RDR is a core component of Treating Customers Fairly (TCF). He says the FSB is trying to remove some of the structures that have led to conflicts of interest in the industry. It is also trying to ensure that remuneration is aligned to the services actually rendered and that those service are, in fact, rendered. “In other words, the Regulator is forcing not only transparency of fees, but also reasonableness of fees and intermediaries will have to deliver a service to their clients in order to get paid.”

The Regulator is also trying to define the role players in the industry more clearly so that consumers can understand who’s who and in what capacity they are acting. The proposed categorisation of advisers into tied, multi-tied and independent is an example.

Rattue expects that the majority of intermediaries will end up opting for the multi-tied model as the requirements for achieving true independence are likely to be too challenging.

While the implementation of RDR in the UK is still relatively new (the regulations were only released in January 2013), much has been made of the fact that many intermediaries closed their doors as a result of it. But Rattue doesn’t expect this to happen to the same extent in South Africa. What could happen, however, is an ‘advice gap’ whereby advice will become too costly for many consumers. “Like organic food, you may know that advice is good for you, but you might not be able to afford it.”

Rattue especially welcomes the setting of standards for product aggregation and comparison services. “Most consumers currently have no idea that many comparison services are actually comparing quotes from only a handful of product providers. They think they’ve done their homework by using one of these services whereas, in fact, they haven’t.” He also welcomes the fact that, unless the proposals change drastically, referral and lead generation practices will be brought into the regulatory framework as current practices can lead to conflicts of interest.

In conclusion, Rattue says that while the RDR discussion paper represents a great deal of thought on the part of the FSB, there is still a lot of work to do and regulations are only likely to appear in 2016.