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.”