The Retail Distribution Review RDR aims to raise professional standards in the Financial Services industry
The Financial Services Board (FSB) has implemented RDR to help ensure that customers are treated fairly when purchasing financial products. RDR is linked to the 4th TCF outcome: “Where advice is given, it is suitable and takes account of customer circumstance.”
Various forms of RDR has been implemented around the world. South Africa is implementing a relatively pure form of Retail Distribution Review RDR, this will bring about numerous changes in the way Financial services conduct business. Including the elimination of commission, the introduction of fee-based advice, instituting exams (demonstrating professionalism) and unbundling the investment value chain (advisers, platforms and fund managers).
Potential impacts of the RDR are:
- Clients will become aware of the costs along the entire value chain
- More passive investment solutions will become available
- Independent financial advisers will face higher compliance cost
- There is likely to be a reduction in the number of advisers
- Banks may begin moving out of independent advice into tied/multi-tied
- Banks may begin restricting advice to premium customers only
- Non-advice online tools provided by larger financial institutions will increase
- High price competition between platforms
- The “traditional” selling of financial products will largely be replaced by “financial planners”
- Price comparison between local and offshore options
In the new Retail Distribution Review RDR landscape advisers will need to clearly demonstrate the value of the services they provide to their clients.
Unfortunately many aspects of financial advice are fairly intangible, and as the results of the advice only become clear in the future. Qualified advisers are able to guide their clients through the multitude of decisions they face over their lifetime. They provide services and expertise that go beyond finding the right type of investment strategy, or products. Advisors help prevent clients from making high emotion mistakes in the moment, and mitigate other negative influences. They keep clients on track to achieve their short, medium and long-term financial goals.
The Retail Distribution Review RDR principles:
- Remuneration should not create conflicts of interest that impact the delivery of suitable product advice, and fair customer outcomes.
- Remuneration must be reasonable and based on the actual services delivered.
- Remuneration structures need to find a balance between supporting service delivery and fairly compensating intermediaries for services rendered.
- Ongoing fees/commission can only be paid if ongoing advice and services are delivered. All fees must be motivated, disclosed and specifically agreed to by the customer.