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Planning for the future will be a key RDR role player

05 May 2015 Jonathan Faurie
David Kop CFP, Head of Advocacy and Consumer Affairs at the Financial Planning Institute (FPI)

David Kop CFP, Head of Advocacy and Consumer Affairs at the Financial Planning Institute (FPI)

There is a certain measure of anticipation building in the industry ahead of the Financial Services Board (FSB) releasing its final version of the Retail Distribution Review (RDR) guidelines. While there has been no word from the FSB as to when we can expect this, the industry does have a certain view in their mind about what the final document may look like.

David Kop CFP, Head of Advocacy and Consumer Affairs at the Financial Planning Institute (FPI), spoke to the FAnews to share the organisations view on how RDR will affect the world of financial planning.

Count the pennies

One of the biggest changes in the industry will be to the remuneration of advisers. The FSB’s main view here is to change the fee structure in certain areas so that advisers are encouraged to sell the best product to the client as opposed to a product which may be financially beneficial to the adviser’s bottom line.

“If we look at the changes from a remuneration point of view, there will be short-term pain but there will also be long-term gains. Over the long-term, the changes are generally positive. It is going to take some getting used to in the way that advisers engage with clients regarding fees and how they justify their value proposition, but these are good discussions to have. There is a lot of work that financial planners need to do in terms of getting themselves ready for that,” says Kop.

He adds that there is the possibility of a dip in income for planners; but over the long-term, they will be able to build a business and ultimately make the saleability of financial practices more attractive through moving towards an annuitized regular income as opposed to upfront commissions.

Finding value

One thing RDR will bring to the industry is lots of changes. With change comes opportunity, and Kop points out that for the first time, there will be a clear definition of financial planning.

“We are finally getting to a stage now where we will have legislation which will define the services that can be offered by a financial planner, it will spell out exactly what financial planning is and what the public can expect from a financial planner,” says Kop.

He adds that the person who is doing true financial planning, and is looking at it from a goals perspective as opposed to a product based perspective, will come to the fore. It is about going on a journey with a client.

“The added bonus of this is that the consumer is going to start respecting and seeing the value of sitting down with a financial planner and doing proper financial planning. It’s more than just selling a product; it is about setting goals, structuring finances, establishing a budget and managing debt. Debt counselling has been established to help manage debt. Financial planners can come to the fore by stopping people from going to debt councillors in the first place,” says Kop.

The definition of what financial planning is and the services that a client can expect from a financial planner will be promoted in mass media. Kop adds that it will also be explicitly pointed out that clients will be expected to pay for these services. This has been backed by both the FPI and the FSB.

Look at who you are 

One of the changes that will definitely take place is that there is a strong possibility that the FSB will split advisers into tied, multi-tied or independent advisers. But Kop says that the financial planner will also be added and will add value to clients.

Kop points out that in order to use the title of financial planner; one will be subjected to a code of conduct that has high standards and a very strict certification process. Membership to a professional body will be compulsory and this will give the necessary support to financial planners and also a peace of mind to client who know that if a financial planner is kicked off the body, they can no longer practice.

In order for companies to be RDR ready, Kop suggests that they Need to take a long hard look at the business and move away from a transaction based business. It needs to move towards a service based business where there is just as much value in the service as in the actual product that was sold.

“Look at the type of clients that you want to work with and target them. Unless you have significant infrastructure backing, the days on having 5 000 clients are dwindling. There is no way a financial planner can sit and effectively serve the needs of 5 000 clients a year. It’s just not possible,” says Kop. 

Editor’s Thoughts:
The rate at which change happens in the industry does depend on financial planners in some sense of the word. If they adjust their actions now, they won’t have to later. No matter what the final RDR document looks like, Kop paints a pretty clear picture of what the role of the financial planner in the industry will be. If we change now, adapting to life when RDR is formalised will be so much easier. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by DAVID, 18 Jun 2015
The FPI/ FSB are totally out of touch with the masses. The very people we are trying to bring into the formal market are either not prepared to, or able to afford advisory fees. So these people will resort to Call Centre and DIY financial solutions.........
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Added by Andre, 06 May 2015
Someone or somebody have to stop this frenzy of theoretical thinking and legislation and get back to basics.
The gap between theory (legislation) and the practise is ever widening and will lead to a disaster.
These salaried people with their insight needs to make a reality check and get on the ground to find out what is working and what not. Taking a dip in income is not negotiable; they have to do better than that.
And when the disaster struck, the salaried people get a severance package and go on retirement, where the independent advisors are left in the cold. Many a time legislation has changed and affected the retirement provision of independents, to the effect that you can never retire, still have to be compliant and paying your fees to whoever require, to be able to get an residual pension. I am obviously not talking about the top performers in the industry; everybody cannot be top performers though!
I have been shocked by this industry and the way the big companies operate without any regard for the intermediaries, only interested in feathering their own pockets under the umbrella of protecting the client.(sic)
We must be the most regulated industry in the world!!!
The cheek that salaried people determine what your income should be...!!
Can they justify to the public their salaries? NEVER!!

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Added by Rick, 05 May 2015
Progress is good, but when money hungry institutions hop on the band wagon to fleece the industry then it need to be stopped. This is a joke and it cannot be disguised as being in the best interest of the planner, The FPI as well as the FSB are two bodies that are forced on us as planners, with more fees to pay now and with reduced income. The planner has no voice in this. The CFP is an accreditation, not a qualification that only stays valid as long as you pay your fees. Very well planned by the money hungry authors of this!!! This is ridiculous! They are just padding their pockets in a privileged position with huge future annuity incomes from planners who have no say in this at all. Without FPI forced membership you can't even get CPD points, another joke....Reduce the FSB levies by the amount that we will have to pay the FPI to make up for it. The planners have good reason to be angry at this nonsense.
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Added by SPWM, 05 May 2015
Everyone is in on the action. Advisors will be fee raped from all sides. The FPI has its own agenda of being the recognised industry body for planners and you either join them or be on the losing end. The major industry players will absorb all excess brokers/advisors and the days of the true independent advisor are numbered. What a shame, all this regulation is playing in the hands of those organisations that have the resources to back them up. Who will be the eventual loser I may ask you?
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Added by Skylimit, 05 May 2015
Note how the FPI is angling to try and secure their income by having compulsory membership.Without it a Financial Planner cannot practice.Everybody is pushing their own agenda ...where is the Broker's voice.Personally I don't have confidence in the FPI representing the best interests of the Broker.Now it's not good enough for Brokers to be accountable to the FSB,Compliance officer,the client,SARS,National Treasury,FICA but to FPI as well who charges for events to earn points over and above the Membership Fee and takes time away from servicing our clients.Daylight robbery if you ask me.
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Added by Cuban, 05 May 2015
Good article and I have great respect for Mr Kob. BUT it is easy for persons, whose salaries are funded by the certification, membership and license fees; whether they are employed by National Treasury, FSB, Fpi ect; to talk about "the possibility of a dip in income for planners". The problem is that our expenses do not take a dip. The above mentioned fees will not be reduced. The 2015 Fpi Conference fee amount to R5670.00 (Vat incl). This will not be reduced for obvious reasons. So I can go on and on. NOW. I have been a financial planner since 1982. The past 10 years after I qualified as a CFP I have presented financial planning fee accounts to existing and new clients. Of these 40% were paid! SO. The big challenge is to change the mind set of our clients and the public! That will take time irrespective of all the "NICE THINGS" that RDR wants to accomplice and mass media information!. In the mean time practices will close, support staff will lose their jobs and people will move away from this industry due to the dip in income. SELAH! -"pause and calmly think about the above"
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Added by dana, 05 May 2015
The small independent financial adviser will be edged out by the big institutions.Only high networth clients will benefit and the man in the street will be left out.
Many advisers will feel the heat and will be left without a job.Its not as if jobs are exactly thick on the ground in our country.
Instead of encouraging enterpreneurs our government is trying to drive them away.
Its one thing when the FSB wanted to regulated the industry by bringing in the exams etc. but the new RDR model is not going to benefit the mases.
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Added by Eric, 05 May 2015
As a private client at two banks, I have been contacted by both to get "free" financial planning advice, from their "financial planners" as part of the services offered to me for being a private wealth client.

So the effect will be that the big financial institution, such as banks, will be able to pay their advisors, and offer "free" services to clients, and in effect starve the rest of the planners attempting to charge for their time. How is this levelling the playing fields, except for giving all the advantage to big institutions and killing the small independent planner???
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