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RDR set to be the industry’s seven year itch

27 June 2017Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

One of the things that advisers fear most about the Retail Distribution Review (RDR) is that life as they know it will change. To them, business will never be the same again. This is a reality that everyone within the financial services industry faces. In the current economic climate, combined with the growing influence of the Fourth Industrial Revolution, no person or company can do business the way that they used to and expect the same measure of success.

The UK has been through RDR, and in an exclusive interview with FAnews at the Discovery Financial Planning Summit, Guy Bolam – Director of BolamRose a brokerage based in the UK – said that the adoption of RDR may not be the worst thing.

Sleepless nights

“I remember the sleepless nights really well. In the build up to the implementation of RDR, advisers were going to bed thinking that their business would drop by between 30% and 40% after the implementation of RDR. However, this was not the case. Clients appreciate value and will pay for someone to take care of their affairs; it means that they have one less thing to worry about. And they will pay to have this done,” said Bolam.

According to Bolam, it is a case of changing your mindset and the way that business is approached. He said that in a pre RDR world, advisers were largely seen as product pushers who were chasing large commissions in order to earn a living. To sustain this model, there needed to be an endless flow of new clients to ensure cash flow.

Engagement into the future

So the first reality that advisers will have to face is that they will no longer be product pushers, but rather a valued business partner who engages with clients about their financial future on a continued basis.

“One of the valuable things that RDR brought to the UK industry is that it forced advisers to re-evaluate their business model to recognise that they need to now help people establish financial plans and to carry them out. This means constant engagement and possible re-evaluation of these plans in order to ascertain whether targets are being met,” said Bolam.

A pertinent challenge

While for the most part RDR has benefited the UK advise space quite considerably, there is a pertinent challenge that the market faced.

Because of the new way that advisers were doing business, a lot of them dropped out of the industry. This left those who were brave enough to ride the initial storm with a plethora of potential clients at their disposal.

“A pertinent challenge that did occur in the UK market was that those who were left to serve the market went after clients who they thought would be able to pay for ongoing advice and continued engagement. This unfortunately did create quite a considerable uninsured gap in the market, which is a real shame because I feel that everybody can benefit from sound financial advice,” said Bolam.

Enter the influence of technology and the rise of the robo-adviser. Bolam pointed out that those who could not afford the advice that was provided for by an adviser turned to other platforms such as online and telephonic financial advice. While not a substitute for the undeniable value that an adviser provides, Bolam said at least they were served in some way, shape or form.

The local landscape

Until RDR is fully implemented in South Africa, much of the predictions into the future is based on educated guess work.

However, we can try and start connecting the dots. The Financial Services Board (FSB) has continually been pushing back the timeline for the implementation of RDR. While the industry is understandably frustrated by this, the FSB has said that the motivation behind this is that it wants to take into account all of the comments that it has received. It will then use this during the design process because they want to implement a system that benefits all stakeholders in the value chain.

So the FSB will give advisers every chance of operating within an industry that not only has the client’s best interests at heart, but also the advisers best interests so that doing business in the industry won’t become impossible.

Editor’s Thoughts:
Change is necessary in life. The ancient Chinese believed that one should never go longer than seven years without changing their job because they would not achieve personal growth. Perhaps RDR is a similar intervention. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Kobus Kleyn, 02 Jul 2017
Great article as always Jonathan Faurie, and well "captured" and I think the FSB is one of the few entities not captured yet.!

I believe that RDR is one of the ways forward for our industry to get a boost to professionalism with long term sustainability.

The UK is actually very similar in numbers and size than us and I believe we can learn a huge amount from their experiences and not try to reinvent the wheel and pay unnecessary school fees.

This will be a game changer and we better adjust our game plans soon as we have 3 years ahead of us at best for phase 3 to finalise itself. Phase 1 is already upon us.

Hats of to the FSB for listening and being negotiable. If this delay anything, we should not be concerned at all.!!
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Added by Arnold, 28 Jun 2017
John you are absolutely correct. The delivery of a risk product and the cost of fulfilment has a product & service impact and has no bearing on the long term value of the product. It is not an investment.
Furthermore and just for starters all the markets we are so readily compared to have compulsory vehicle insurance. Rather different job to sell something that the clients are not forced to buy. Total different acquisition cost in trying to persuade someone to buy rather than just taking a order.
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Added by John, 27 Jun 2017
The one thing everyone seems to forget when discussing RDR, particularly when comparing to the UK model, is that the FSB is including risk into its model in SA.
The UK model is for investments only, which I welcome with open arms. I have not taken commission in years, as I only use LISPs for investments, and take an annual fee.
If RDR were implemented the same way, my business model would not change, I already do things the "right" way.
It is the changes to life commission that worry me. It is untested, and the current % of 3.25 is completely unplayable in the as and when arena - these are issues that never seem to be addressed.
It is my opinion that any comparison to any other model, be it the UK or Australian version, is fundamentally flawed, as advisors here will be affected in a very different way (except for investment only advisors), a way that cannot be fully understood at this stage.

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Added by Dirk, 27 Jun 2017
I've been affiliated with 3 corporates over 27 yrs and my biggest issue with RDR is that FSPs punt their own in-house products as appropriate advice which they will take responsibility for! Once you leave their employment and the client sticks with you - there is NO compensation for the ongoing service you deliver on those products, because the product provider does not grant your new FSP a contract. So the fee a client pays goes to the original FSP to fill their pockets...and not mine. The FSB cannot help me sort this one out - so where is RDR!!!
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Added by Craig A, 27 Jun 2017
I have a friend in NZ and one in England and they tell me that the commission on a life policy is about 3 times more than what we earn here. Their ongoing commission is less but its so much easier to start out int their market. Also, if you want to compare SA with other countries, we have to look at ALL the factors.... our level of civilization (or lack of it), average income, the crime rate, unemployment, etc. We cannot compare to them in any way, but it looks like we are going to get a cut-and-paste solution? Some of the new rules make no logical sense.

How will anyone be able to start out in this business by earning minimal fees? As it is, the average age of the financial adviser is over 55. A lot of this RDR stuff is just playing into the hands of the insurers. In 10 years time the average adviser will be dead or retired and there will be no one to take over, except the direct insurers.
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Added by Arnold, 27 Jun 2017
Yes said the King it is all the same thing my Queen. Some call it RDR and others call it RDR must then be exactly the same thing my dear. Different counties, no different continents, different markets, different number of players, different laws and dispensation but all called RDR so it must be the same thing. Bloody battle it is! If there is no bread let them eat cake! Must be the same thing.
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Added by Paul, 27 Jun 2017
I support Paul above - well said - work in the real world and then evaluate
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Added by Paul, 27 Jun 2017
Hmm, as the King said to the Queen..nasty battle,but we are safe.
T'is a petty about the army though.
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