The retail distribution review (RDR) regulations, which must be phased into financial services practices between January and April next year, are aimed at improving the outcomes for consumers and reducing risks for the financial services industry, says financial services and insurance firm Liberty Group sales, distribution and bank assurance executive Johan Minnie.
The regulations aim to ensure that financial services firms and practitioners improve the transparency of their services and fee structures. This will allow better assessment of the rationale underpinning investment and insurance portfolio decisions taken by financial services practitioners, which will help to keep practitioners and firms accountable, he explains.
“The clear demarcation of how much is paid for which services will improve perceptions of the industry. Professional financial advice has always been paid for, but will now be charged separately. “Further, the RDR will also require information on the remuneration paid to intermediaries and help clients to make rational decisions about financial services.”
It is necessity to connect the RDR with consumers and customers to achieve the best outcomes for them. The regulations also present a significant opportunity for the industry to use technologies to connect and collaborate more effectively and to transform in response to the fundamentally changing environment, says Liberty distribution transformation divisional director Jay Naidoo.
Transparency is not negotiable for an industry that is intrinsically involved in managing and creating wealth for clients, says South African Savings Institute acting CEO Gerald Mwandiambira.
“Given South Africa’s unique demographics and financial pressures, including the legacies of apartheid on the savings habits of and financial products used by the growing six-million members of the black middle class, the RDR initiative supports financial literacy through transparency and accountability.
“In South Africa, it is important to have the transparency envisioned by the RDR to improve the outcomes for people who have not traditionally had investment or savings products, and to enable them to overcome the issues they face. These include the ‘black tax’ (money to support extended family members) and the fact that funeral policies are the most popular financial products, despite typically being unsuitable financial instruments for individuals to grow their wealth and intergenerational wealth.”
The implications of the RDR is that the consumer must be at the heart of financial services and products supplied to them. For the first time, consumers are made aware of and understand how much they are paying for financial advice provided with financial products, which empowers them to make better choices, says Minnie.
The RDR exposes the work and support required initially and over time to ensure that clients receive the benefits envisioned by a financial product or service in the future, which reveals the value that financial practitioners provide for clients.
However, a critical part of understanding the value provided by financial practitioners is to ensure the education of consumers about their rights and responsibilities and inform them about what advisers do to justify their fees, says Naidoo.
Engagement with clients, stipulated by the RDR regulations, will also help to ensure that clients perform the necessary actions required to achieve the intended future outcome, he adds.
“Expert advice has always been paid for, but not always recognised or appreciated. “However, conversely, while the financial industry loved to sell funeral policies to the public, the advisers have always known that only one such policy is necessary. This means that the experience of financial advice was not always what it should have been,” says Mwandiambira.
“The RDR should be embraced for not only financial education and improving consumer experience of the industry but also correcting and changing the incorrect attitude of the past and effectively supporting the first generation of black South Africans enjoying wealth management, inheritance and usufruct,” he concludes.