Complexities facing the financial services distribution landscape
The wave of legislative change hitting the short-term insurance sector could alter the local insurance landscape.
The Retail Distribution Review (RDR) White Paper describes the current distribution landscape from three perspectives: the types of services provided by intermediaries, the types of relationships between intermediaries and product suppliers, and the types of remuneration that should apply to the revised sets of services and relationships proposed, including measures to deal with conflicts of interest in the provision of financial advice.
While others see this in a positive light in terms of creating financial stability and inclusion, protecting consumers, regulating the market and supporting the integrity of the insurance market as a whole, others believe it is complex and will be costly, leading many to find greener pastures elsewhere.
There is a good argument that brokers should be allowed to charge for advice over and above commission. However, in practice, it is hard to justify charging a customer an advice fee as the customer’s perception is that he/she pays for the advice through the commission.
The key topic of discussion at PSG’s Annual Conference, which took place in May, was that of regulatory change and its impact on the short-term insurance sector.
Regulatory change
Derek Watts, Journalist and key note speaker, facilitated a panel discussion with Bertus Visser, Chief Executive: PSG Insure Distribution, Gordon Whitcher, Chief Executive: Short-Term Administration at PSG Insure, Vernon Pieters, Short-Term Adviser, PSG Insure Port Elizabeth and Barry Taylor, Director, Financial Intermediaries Association (FIA) and Chairman of the FIA Short-Term Executive Committee.
According to Taylor, brokers and advisers need to inform themselves on regulation because the better informed they are, the better they can influence it. “Regulation creates consumer and client confidence and protection. It sustains and creates opportunities for all brokers. It encourages fair competition and protects the integrity of the market. RDRspecifically assists advisers and brokers of ridding the industry of improper practices and practitioners,” he said.
“The value to the client is at the heart of the intermediary model which supports the strategy of client service and excellence through quality advice. The point is that consumer protection and customer advice is key. We, at the FIA, believe that remuneration should be fair and that it should be relative to the value add for the customer. There should be a level playing field between the different models,” he continued.
Visser says that PSG is an early adopter of changing regulations and supports the overall objectives of RDR. “We will actively engage with necessary bodies and work streams. There are some concerns but we have made our submission to the FSB and have already engaged with the regulator,” he says.
Conquering the hurdles
“It is going to be tough for independent or multi-tied advisers to achieve efficiencies in their businesses if they do not have access to a platform. The reason for this is they would need to manage multiple systems and processes. If we want to make RDR work for us, we will have to continue our focus on providing superior advisory service. This is where a platform comes in, since it is ideally suited to deal with the more commoditised types of insurance business. If we position ourselves correctly, embracing RDR could give us a competitive edge,” said Whitcher.
Another issue of broker remuneration is that of fees paid to brokers under the binder or outsource arrangement. “Currently, there are brokerages and insurers out there who are paying a significant amount on binder fees. So this brings me to say that we are the authors of our own misfortune in bringing this capping upon ourselves. I think the cap will become the norm. If you have a well-run book you are going to be penalised and will ultimately suffer,” Taylor said.
Flowing with change
Pieters mentioned that RDR could have unintended negative consequences, claiming that RDR may throw advice out of the door because there will be increased costs and increased administrative burdens. He mentioned that if advisers do not have the capacity, this will be a difficult task. But then again, this brings us to doing business differently by embracing change in a positive way. He mentioned that regulation is here to stay so we need to prepare rather than find fault because that will not help us. “We are going to have to look at different ways of doing business. I believe that RDR does add value and provides opportunity. It is essential to invest in this change so that we can be consistent,” he said.
Advisers have to implement all the changes from limiting outsource fees, capping binder fees, adding potential new levels of commission and charging advice fees instead of policy fees. This will change the way going forward in terms of giving advice.
Whitcher said advisers should follow a service model and focus on building lasting relationships with clients and at the same time support the required investment in capacity and processes to weather the coming storm. “Prepare and make use of the opportunities created by change and turn it into a competitive edge. Obviously there are big challenges, but we need to embrace the opportunities,” he said.
According to Taylor, regulation is here to stay. It is non-negotiable so it is essential that we prepare ourselves. “Some insurers are already enacting RDR.”
It is critical to remain relevant to the industry. Visser encouraged advisers to differentiate themselves through advice and not price. He mentioned that segmentation will help with efficiencies and further added that advisers should focus on commercial business as it is more profitable.
Editor’s Thoughts:
As Pieters and Taylor mentioned, regulation is here to stay so we need to prepare rather than find fault because that will not help us. Embrace change and find new opportunities on this platform. Gain a competitive edge by being one step ahead of your competition. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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