In whose interest is the RDR anyway?

After a recent newsletter published by FAnews on the Retail Distribution Review (RDR), it is evident that many financial planners feel that RDR cannot be disguised as being in the best interest for them.

Readers complain

One reader mentioned that the gap between theory (legislation) and practice is ever widening and will lead to a disaster, as the voice of the industry is not being heard. Another reader mentioned that with the possibility of a dip in income for financial planners, practices will close, support staff will lose their jobs and people will move away from the industry.

They went on further to ask how this will level the playing fields, except for giving all the advantage to big institutions and killing the small independent planners.

Taking these comments into consideration, David Kop, CFP®, Head: Advocacy and Consumer Affairs at the Financial Planning Institute (FPI), shares the organisations view on how RDR will affect the world of financial planning.

Clarifying matters

FPI’s position on RDR was developed after wide consultations members, electronically and face to face. This feedback was then debated by the board advocacy committee and we then informed members of our final position.

One of the things FPI has long campaigned for is the recognition of financial planning as a profession. Too often the financial planner is compared to a car sales man, and the perception of financial planning is that all we do is sell products. For the first time we are seeing financial planning being defined separately from product advice and sales.

Painting a clear picture

The benefit of RDR is that intermediaries who are offering financial planning or product advice can now stand out as opposed to being painted with the same brush as product sales people. It will assist with creating a clear delineation of services in the eyes of the consumer, and how these services should be paid for.

While the final intermediary titles need to be discussed, we are pleased to see that the title, financial planner, will be reserved for intermediaries providing financial planning services. Over time, and with a combined effort by professionals and professional associations, this will highlight the value of financial planning in the eyes of the consumer.

In order to have financial planning recognised as a profession we need to understand what a profession is. It is widely acknowledged that in order to be recognised as a profession six characteristics need to be in place; a knowledge base, a tradition of service to its clients; it must be independent from state, a professional is educated rather than trained, it is represented by a professional association and is subject to a code of conduct.

Continuous Professional Development

It is essential to achieve professional development through a process of lifelong learning whereby an individual systematically engages in activities that maintain the abilities, skills and knowledge necessary for professional practice.

FPI has obligations to foster a commitment to lifelong learning and development amongst its members being a key component of professionalism. Continuous Professional Development (CPD) opportunities are available to develop and maintain capabilities to enable members to perform competently within their professional environments.

The objective is to assist members to develop and maintain professional competence in order to provide financial planning and financial advice of high quality in the public interest.

Membership of a professional association

Membership of a professional association allows for the professional to be represented independently of the state or commerce. It also allows the financial planner to demonstrate to their client that they are committed to the profession and serving the best interests of the clients. It allows the client to understand that the financial planner has a higher level of education, been certified by a third party and is willing to stand to disciplinary procedures by peers.

Through this process, financial planners can maintain and improve their abilities, skills and knowledge, which is what makes professionals stand out in the eyes of consumers. Through this, financial planners can also assure clients that they have kept up to date with the latest changes and developments to their benefit.