Planning for the future will be a key RDR role player

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 [email protected].

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