A call for calm as RDR causes waves amongst intermediaries
It has been just over a week since the Financial Services Board (FSB) launched its Retail Distribution Review (RDR) White Paper, and while there has been some concern in the industry, the FSB has urged those who have issues with the White Paper to remain calm and go through it with a fine tooth comb.
FAnews spoke with Jonathan Dixon, Deputy Executive Officer of Insurance at the FSB, Caroline da Silva, Deputy Executive Officer for Financial Advisory and Intermediary Service (FAIS) at the FSB and Leanne Jackson, Head of Treating Customers Fairly (TCF), about the process and the purpose of RDR and the objectives that the FSB hopes to achieve with RDR.
No death kneel for the industry
There is generally a lot of negativity associated with compliance. Most of it comes from the fact that there is an added element of compliance which companies and intermediaries need to adhere to, but many in the industry are asking why the FSB is trying to fix the dynamics which have served the industry relatively well up to this point.
Collectively, these voices point to the fact that the industry will be a shadow of its former self in the future with some even going so far as to say that RDR will be the death of the industry. This was a comment on a previous RDR newsletter.
“RDR has been created with the dual purpose of improving customer outcomes in the industry, and creating a sustainable intermediated model. The RDR White Paper has been carefully designed after much consideration and consultation around these two objectives. These concepts are intricately interconnected. Only by building confidence and trust in the financial services industry are you able to have a long-term sustainable model for the intermediated sector. There are a lot of opportunities for intermediaries and intermediated insurers in the White Paper and we urge them to grab hold of these opportunities with both hands,” says Dixon.
Debunking negative perceptions
The general consensus that we got out of our previous RDR newsletter was that the perception towards RDR by advisers in the industry has been negative. However, Da Silva says that the feedback the FSB has been getting has been generally positive.
“So far, the industry reaction to RDR has been extremely positive. This has been centered around two specific aspects. One aspect is that the structure of the White Paper is very favourable. This is because of the detail, thoughtfulness and understanding of the market that has gone into the development of the paper. The second aspect is that the proposals made significantly benefit the intermediary, specifically when it comes to addressing matters of conflicts of interest,” says Da Silva.
Dixon does acknowledge that there is some negativity in the industry. “Where there has been some concern, we feel that it is coming from a natural fear of change. Maybe people have not had the time to read and familiarise themselves with the proposals. I think some of the negative reactions come from the misperception that the outcome will be hurtful or negative towards the intermediaries’ revenue streams. Once the intermediaries have had time to consider the proposals more carefully, they will see that what we are essentially saying is that we cannot believe how anyone can feel allegiance to a bad system,” says Dixon.
He adds that it is bad for customers because in many ways it undermines good outcomes; and we feel it is bad for intermediaries, particularly financial advisers and their sustainability and their ability to compete in this market with this system going forward.
The absence of commissions
The FSB proposes that commission in the investment space be completely banned while a 50% commission on the replacement on life risk products be banned. This has caused a stir in the industry.
“You cannot get commission on a replacement product, but you can negotiate a fee for that replacement. You have a primary duty as an adviser to advise on the interest of the customer, and if you are providing that advice, you should be paid. However, this must not be motivated by commission,” says Dixon.
This advice fee will be facilitated by the product provider and can either be an upfront payment or an ongoing payment. This will negate the worry that advise fees will out price customers in the lower to middle income earning markets. But there will be safe harbour guidelines which the FSB will establish. In order to establish these guidelines, the FSB will consult with industry stakeholders and consumer representatives in order to come up with an acceptable rate.
Changing the look of advisers
The traditional way in which advice is provided in the industry will change.
“In the past, advice was either given by independent financial advisers (IFAs) or tied agents. We are keeping these two categories, but we are also adding another category called a multi-tied adviser. We need to sit and define what the difference is between an IFA and a multi-tied adviser, but we need to set additional standards where there are strict controls over conflicts of interest with multi-tied advisers,” says Dixon.
The RDR proposals will be implemented in a phased approach. Phase one involves changes with the current regulatory framework and is estimated to take place during the first half of 2015. Phase two involves changes post the effective date of the implementation of the Twin Peaks model which is estimated to take place during the second half of 2015. The final phase involves changes post effective date of the future overarching market conduct Act which is estimated to take place in the first half of 2016.
Editor’s Thoughts:
There is no doubt that RDR will change the face of the industry. While FAIS professionalised the industry, it possibly did not create the level of trust that RDR hopes to achieve. With trust, a sustainable model can be created whereby intermediaries can form lasting relationships with clients who firmly believe that a product is being sold to them because the intermediary has their best interest at heart. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments
If you are still stuck in product-sales land, then it's going to need a change in mindset first. The industry trained you to sell its products and give away the bit that was really valuable. Now you have an opportunity to re-shape that equation.
Article in the UK MoneyMarketing mag today says basically no real change to adviser landscape, except that bank-based advisers have fallen by around 23%...
http://www.moneymarketing.co.uk/2016577.article?cmpid=mmbreak_699103
That's massively good news for the professionals that remain. If you run a financial advice firm and you want to survive RDR, go onto my website and download my book "Keep Calm & Survive RDR" - It's free... you don't even need to give me your e mail address.
www.brianfoster.co.za
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I am in the same boat as yourself and I think that that the main reason for Broker apathy is because the majority are elderly and looking forward to their 'retirement". For you and me with a good 20 odd years still to go we are going to be the most affected.Whether we like it or not,if we truly care we need to band together and form a Union cos its just going to get worse.The abuse from Product Suppliers, FSB, etc etc is just going to mount up.Lets even the scales a bit.Brokers are an integral part of the economy.Time to flex our muscles.Time to subsist off our diminishing rolls whilst everybody fights for new business for a good 6 months.All big insurance companies don't have enough airtime to go direct... Outsurance has tied that up every 5 minutes of the day. This country was built mainly on the Minining and Life Assurance Industries.Now look at the state of both sectors. Report Abuse
WHY ISNT GOVERNMENT FUNDING THE FSB BUT AS ADVISORS WE MUST FUND THE FSB WHO IN TURN ARE ALL OUT TO REDUCE OUR INCOMES!!!! Report Abuse
I also agree with Eric, some policies have to be replaced if you are going to give the client the best advice. Its quite sad that rules have to be made in order to stop the minority from being unethical. Report Abuse
I have been in the industry for 12 years and have concentrated mostly on life business. I do not have R100mil under management that pays my bills every month. I rely largely on 2nd year commission, renewal commission, commission on premium and cover increases etc., which as I understand, is also falling away, to produce an annuity revenue. It will take much time before the 'pay as you go' system starts paying off and sustaining my business.
So I, in effect, am taking a 50%-60% pay cut. I am 42, honest and diligent with my work processes. What a loss to the industry it will be when I am forced to 'opt out' if this indeed comes into effect. Report Abuse
I have seen many changes in the last 32 years and the advisor were always the one that has to pay, no support from anywhere. We should get legislation in place to protect our income from the authorities; they are unconstitutional in their behaviour, together with the insurance houses!
The authorities are systematically busy wiping out an industry, and that will be in less than 10 years from now, after the present force has retired. There will be lights burning but nobody will be home to open the door and to service the clients!!
We have to deal almost on a daily basis with the internet that's down, coping with cost escalated by the insurers and FSB, increasing legislation fees and then salaried employees which has made it their daily task to under the cover of protecting the public, demolishing an industry simply by legislation without being challenged in any way.
Intermediary bodies is far too weak and moderate to deal with these cowboys, and they simply got bulldozed by the legislator as and when he wants, to the detriment of intermediaries , and take note, working for 20 plus years in the industry without a salary. How is it possible that we allow salaried employees to determine our income?
No other industry receives so much interference from authorities, salaries are determined by misconception created by the press and there cronies!
Paper is patient, old saying talk is cheap, and money buys the whiskey!!.
The constitution seems to be protecting only clients, and nobody else! Fail!!!!
What about my rights to make a decent living and to make provision for retirement?
There is no way I will encourage anybody to make a career in this industry or what's left of it, sorry!
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The long and the short is that many if not all of my staff will have to be retrenched. I will have to sacrifice my standard of living, for which I have worked very hard!
On the issue of replacement. Stop those advisors that travel from company tot company every 2-3 years and that then churn all their clients...easily done, if you receive more than a certain % of replacements from any FSP (issue all role people in the industry a stake number that will never change so you can keep track of them), investigate and act accordingly. We have to replace policies, due to unfit advice, better products, changes in clients circumstances, and 100 other reasons, that all fall into legitimate reasons why to replace a policy. If we do not get paid to look for better solutions, why will we do it (once again not talking about serial churners that should be taken out of the industry). Now companies can ring-fence their inferior products, because there is no incentive to correct them.
We send out a questionnaire to our clients. All came back choosing the commission option as good value for money for them and us. Non indicated they will be willing to go onto a fee pay as you go type of service structure. Where does the FSB base their research on??
I have been an independent for 13 years and have succeeded to build a successful brokerage, going from strength to strength with a persistency rate of more than 96% at all companies. On what does the FSB base their statements that the current model is not sustainable??
Who at the FSB will be willing to take a 50-60% pay cut, work more, incur more expenses, take on more risk and duties??
Let them put their money where there mouths are!! Fat cat bureaucrats, not having an idea of what they are talking about and can afford to make mistakes at other peoples expense!! Report Abuse
In the UK however there are social benefits such as state pensions and disability/unemployment benefits that will sustain the populous, unlike South Africa where if you don't provide for yourself nobody will. So without financial advisers actually encouraging people to look after their affairs, the majority of people won't. This in turn will have a devastating effect on the economy and place further pressure on the fiscus.
Well intentioned first world solutions in a third world economy just aren't viable and the only people who will get and use financial advice are the rich, so the rich will get richer, the poor poorer and the government will complain and blame the private sector. It's pathetic. Report Abuse
The document is 97 pages long - read it and most of the negative perceptions with disappear. Report Abuse
Surely, we have to operate in a competitive free market where consumers benefit from ongoing improvements to products. Yes, serial churning should be prevented but according to FAIS we have to apply our minds and give the best possible advice according to our clients situation. We have to get paid for doing that in order that we can stay in business! Report Abuse