In RDR

Finweek English Edition - - MONEY -

The pro­posed Re­tail Dis­tri­bu­tion Re­view (RDR), which aims to en­sure fair c u s t omer t r e a t ment b y f inan­cial ad­vis­ers, has caused a lot of con­ster­na­tion in the in­dus­try.

While no­body has f aulted t he in­ten­tion of the re­view, which hopes to in­crease con­fi­dence in the in­dus­try, t here has been a lot of ta l k about neg­a­tive un­in­tended con­se­quences.

The way that the dis­cus­sion has been framed lo­cally has largely been to point out all the things that have gone wrong in other parts of the world where RDR has been in­tro­duced. How­ever, it has almost en­tirely failed to pick up on what has gone right. And it seems ap­par­ent that while RDR does change things in a big way for f inan­cial ad­vis­ers and does make earn­ing re­mu­ner­a­tion more dif­fi­cult, it is also a huge op­por­tu­nity for those ad­vis­ers and f irms that are will­ing to embrace it.

Bria n Foster, a UK- qua l i f i e d cer­tif ied f inan­cial plan­ner who lived through RDR in the UK and now con­sults to f inan­cial ad­vis­ers in South Africa, be­lieves t hat RDR should not be seen as a bur­den. Rather it is a chance for ad­vis­ers to rein­vent their business model.

“His­tor­i­cally, the f inan­cial ser­vices in­dus­try has trained ad­vis­ers to sell prod­ucts, not to be fi­nan­cial ad­vis­ers or plan­ners,” Foster says. “What RDR is do­ing is forc­ing peo­ple to con­front that.”

He be­lieves t hat i n many ways f inan­cial ad­vis­ers have cre­ated their own prob­lems. To cor­rect this re­quires a very dif­fer­ent ap­proach. He ad­mits that this will not be easy, but it is nev­er­the­less a huge op­por­tu­nity for those that can get it right.

“In the UK, the smaller in­de­pen­dent f i rms that were early adopters and em­braced change have prob­a­bly done rather bet­ter after RDR, prin­ci­pally be­cause they are quicker to make the mind­set change that is re­quired,” Foster says. “But a lot of big­ger or­gan­i­sa­tions l ike banks found that very diff icult be­cause they strug­gled to get away from the prod­uct dis­tri­bu­tion mind­set.”

He ar­gues that it is in­evitable that some f irms will strug­gle to get paid in an en­vi­ron­ment where com­mis­sions are scrapped. This is be­cause of how t hey have de­scribed t heir ser vices in the past. They now have to f ind a way to ar­tic­u­late what it is the client is pay­ing for that makes it not only un­der­stand­able, but ap­peal­ing.

“My ex­pe­ri­ence is that those ad­vis­ers that have al­ways been up­front and trans­par­ent have had less of a prob­lem con­vinc­ing peo­ple to pay fees,” Foster says. “But I think a key is­sue is in de­scrib­ing what it is that you’re do­ing be­cause peo­ple won’t pay for any­thing un­less they per­ceive there to be value in it. If the client doesn’t un­der­stand what they are get­ting, how are they meant to take the leap to pay for it?”

He says t hat t here has to be a f un­da­men­tal shift i n t he way t he f i nan­cia l adv i s er s a nd f i nan­cia l plan­ners see their role. And this is al­ready hap­pen­ing in many parts of the world.

“Fi­nan­cial plan­ners who po­si­tion them­selves to be able to talk to peo­ple about their lives, and the po­si­tion that money holds in their lives, are hav­ing much bet­ter qual­ity con­ver­sa­tions with clients,” he says. “Those con­ver­sa­tions are lead­ing to bet­ter re­la­tion­ships, which mean t hat ad­vis­ers are not strug­gling to get paid.

“So we have to turn this through 180 de­grees and do the op­po­site of what we’ve been taught be­cause the con­ver­sa­tions that we’re hav­ing with clients at the mo­ment about prod­ucts are just not en­gag­ing. We need to be talk­ing about peo­ple’s l ives and the things that are mean­ing­ful to them.”

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