Regulatory changes proposed by retail distribution review seek to eliminate conflicts of interest

In an industry under siege by fintech and robo advisors, it’s more important than ever that clients can trust their financial advisors.

Regulatory changes were in the spotlight today at the 29th Financial Planning Institute Professionals Convention at the Century City Convention Centre. In a panel discussion facilitated by Ian Middleton CFP®, managing director at Masthead, and past president of the Financial Planning Institute, the industry changes proposed by the Retail Distribution Review (RDR) were examined.

On the panel for this crucial discussion for the industry of financial planning professionals were David Kop CFP ®, of the Financial Planning Institute of South Africa, Caroline da Silva representing the Financial Services Board (FSB) and Gerhardt Meyer CFP®, a director at the Financial Planning Standards Board.

The FSB published its RDR discussion document in November 2014, which contained 55 regulatory proposals, to be implemented in phases. In a nutshell, RDR seeks to ensure fair outcomes for customers, and eliminate conflicts of interests for customers, financial product providers, and financial advisors.

Da Silva updated delegates on the roll-out of RDR in South Africa — Phase One with the initial work with regard to legislation has been completed and is about to be passed and Phase Two and Three consultations have already started. These will follow into the new year, she explained.

With over 12 000 institutions on board, she elaborated on some of the challenges of engaging with such a large number of stakeholders, encouraging the industry to “speak in a single voice or as part of an association”. She added: “What we want to change is to allow you, as the financial professional, to decide how to get the best outcome for your client. We [the FSB] just give you the guiding principles to do it. We are focused on outcomes, and these are based on whether or not you are treating your customers fairly.”

How consumers benefit

Discussing the outcomes for the consumers, who are the beneficiaries of these new regulations, Kop underlined the importance of engaging with the aim to improve financial literacy. “Media campaigns have been implemented to make sure the client is more informed with regard to what they are entitled to when they engage with financial advisors. A campaign to take regulation to the people has been launched by the FSB, as well as a mobile bus, funded by the Financial Services Consumer Education Foundation.”

“The reality is that the RDR won’t be effective until we have consumers who are educated and understand [regulations]. Consumers need to know what to ask their financial advisor,” said Kop. “It’s not just a regulatory push but a customer push because fintech and robo advisors are on the way and consumers are requesting more than just transactions – they want long-term relationships with their financial advisors.”

Regulations are already being rolled out on a global scale with South Africa still in the early phases. “Some countries have simply implemented without engagement,” said Meyer. “Our regulator has been engaging and collaborating with relevant stakeholders, and has not implemented legislation at short notice without consultation.”

Referring to lessons learned watching similar regulations being implemented internationally, Meyer suggested that local financial advisors be prepared: “As industry professionals, we need to plan and strategise for it [new regulations]. This is a fundamental business change; do the right thing by your clients and comply with the rules.”