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Prep for change and embrace RDR

16 May 2016 Jonathan Faurie
Jonatjam Faurie, FAnews Journalist

Jonatjam Faurie, FAnews Journalist

It’s always amazing to watch a sportsperson in their prime perform on the world’s biggest stage. Being an Olympic year, a lot of focus will be on Usain Bolt and Mo Farah when the world descends on Rio. But are we aware of what these athletes go through in order to perform the way that they do? Months of gruelling preparation are necessary in order for them to secure gold. The same applies for companies in the financial services industry that want to be ready for the implementation of the Retail Distribution Review (RDR). There are certain steps that need to be taken to make your practice RDR ready

It all starts with the why

Before we continue, it needs to be pointed out that the Financial Sector Regulator Bill (FSR Bill), the Bill that would promulgate the formation of Twin Peaks, has been put on hold until August with the actual formation of Twin Peaks happening in January. Any RDR proposal that is dependent on the FSR Bill will be on hold until then. These are the latest guidelines provided by the Financial Services Board (FSB).

Why is the FSB so intent on implementing RDR? According to them, RDR is necessary because it keeps intermediaries and product providers in check. Many top spokespeople from the FSB have pointed out that some product providers and intermediaries have not acted according to the full letter of the law and there are some unwelcome practices in the industry that need to be rooted out.

We are all aware of the functions within our businesses that will be affected by RDR, and just because certain aspects of RDR are being put on hold, it doesn’t mean RDR will disappear. RDR will change the way you do business, so you need to have a clear vision of why you are in business.

A clear departure point

Brian Foster, Co-Founder of the business coaching company Beyond RDR, says that whether you are in the financial services sector for the money or you are in the sector to make a difference to people’s lives, being clear about this vision is important because it allows you to define your departure point.

This is necessary because it allows you to segment your customer base. In a world where clients demand personalisation, there is very little space to be everything to every person, the days of being a jack of all trades but a master of none are gone. 

This leaves intermediaries in a position where they may have to make a key decision. Do they remain within the higher income earning market and focus on offering clients the best products available, or do they join the product treadmill and enter into the lower income earning market?

“By segmenting their customer base, intermediaries are able to target their messages effectively and focus their resources in a specific area. This is never a bad thing,” says Foster.

The flight to retirement is now boarding

With air travel, passengers have the option of travelling economy class, business class or first class. We all get to the same destination, but the service we get while getting there is different for everyone.

The same applies to retirement, intermediaries will typically have a sprinkling of super-rich clients, a generous helping of net worth clients and one or two lower income earning clients, but the majority will be regular working class clients who save what they can.

“Everyone is saying that all clients should be treated the same. But this is impossible and unheard of. How can you treat a high net worth client the same way that you treat a client that has a basic savings product? As long as the end result is the same, the way you treat clients will differ,” says Foster.

Don’t price the bones

Market segmentation is necessary because it allows intermediaries to price their service appropriately. As Warren Buffet once said price is what you pay, value is what you get. One would rightly assume that the reason intermediaries are charging richer clients higher rates than they are charging regular savers is because richer clients are getting a more personalised service.

“What’s frightening is that a study conducted on the South African intermediary market shows that a large portion of intermediaries haven’t worked out how much it costs them to deliver a service. If clients cannot connect the dots between price and value, are you offering them the best service?” asks Foster.

Fees will be significantly affected by RDR. And it may make sense for intermediaries to make a decision as to where they will focus their attention. Will they only focus on rich clients or will they only focus on regular savers? If they are going to operate across the board, they cannot afford to fall into the trap of not knowing how much it costs them to deliver a service. There needs to be clarity on this.

Editor’s Thoughts:
Intermediaries know why they are in the financial services industry. It is satisfying to see a client who you have worked with for many years retire comfortably. RDR could possibly change this, but only if you are unprepared. How are you preparing your business for RDR? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Dave Watson, 16 May 2016
how will the RDR affect the short term industry?
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