RDR set to im­prove in­dus­try’s client fo­cus

The Star Early Edition - - NEWS -

HE Fi­nan­cial Ser­vices Board (FSB) re­cently re­leased a dis­cus­sion pa­per out­lin­ing the re­sults of its re­tail dis­tri­bu­tion re­view (RDR) process. The dis­cus­sion pa­per pro­poses a num­ber of far-reach­ing re-

Tforms to the reg­u­la­tory frame­work for dis­tribut­ing re­tail fi­nan­cial prod­ucts to cus­tomers in South Africa. The FSB pro­poses that all fees paid by cus­tomers must be mo­ti­vated, dis­closed and ex­plic­itly agreed to by the cus­tomer, which will mean that the pay­ment of com­mis­sion by prod­uct sup­pli­ers to in­ter­me­di­aries will be banned in re­spect of in­vest­ment prod­ucts. This will be re­placed by an ad­vice fee that must be ex­plic­itly agreed up­front with the cus­tomer.

Ac­cord­ing to the FSB, linked in­vest­ment ser­vice providers (LISPs) will only be per­mit­ted to be re­mu­ner­ated by means of a plat­form ad­min­is­tra­tion fee dis­closed, agreed to, and paid for by the cus­tomer. Pay­ments from prod­uct sup­pli­ers to LISPs, in­clud­ing any re­bates, will be pro­hib­ited.

Jeanette Marais, di­rec­tor at Al­lan Gray, says LISPs will have to use “clean prices” and will no longer be able to ac­cept re­bates from prod­uct sup­pli­ers.

She says Al­lan Gray was one of the first LISPs to pay the re­bates they re­ceived onto in­vestors.

“We support the ‘clean pric­ing’ pro­pos­als as it will make the fees more trans­par­ent for in­vestors, sim­plify cost struc­tures for plat­forms, and support the con­sis­tent de­liv­ery of fair out­comes to cus­tomers.

“Al­lan Gray is of the opin­ion that the RDR will have a pos­i­tive ef­fect on the in­dus­try. We like the fact that the RDR will level the play­ing fields and en­sure that the in­dus­try has a client fo­cus.”

The FSB says the RDR pro­poses the in­tro­duc­tion of a set of struc­tural in­ter­ven­tions de­signed to change in­cen­tives, re­la­tion­ships and business mod­els in the mar­ket in a way that gives cus­tomers con­fi­dence in the re­tail fi­nan­cial ser­vices mar­ket and trust that prod­uct sup­pli­ers and ad­vis­ers will treat them fairly.

“This in turn will support a more sus­tain­able mar­ket for fi­nan­cial ad­vice and fi­nan­cial ser­vices over the longer term.”

The FSB says that de­sired out­comes of the RDR are dis­tri­bu­tion mod­els that:

Support the de­liv­ery of suit­able prod­ucts and pro­vide fair ac­cess to suit­able ad­vice for fi­nan­cial cus­tomers;

En­able cus­tomers to un­der­stand and com­pare the na­ture, value and cost of ad­vice and other ser­vices in­ter­me­di­aries pro­vide;

En­hance stan­dards of pro­fes­sion­al­ism in fi­nan­cial ad­vice and in­ter­me­di­ary ser­vices to build con­sumer con­fi­dence and trust;

En­able cus­tomers and dis­trib­u­tors to ben­e­fit from fair com­pe­ti­tion for qual­ity ad­vice and in­ter­me­di­ary ser­vices, at a price more closely aligned with the na­ture and qual­ity of the ser­vice; and

Support sus­tain­able business mod­els for fi­nan­cial ad­vice that en­able ad­viser busi­nesses to vi­ably de­liver fair cus­tomer out­comes over the long term.

The FSB has put for­ward a to­tal of 55 spe­cific pro­pos­als for dis­cus­sion and com­ment. The pro­pos­als cover: Types of ser­vices pro­vided by in­ter­me­di­aries; Re­la­tion­ships be­tween prod­uct sup­pli­ers and in­ter­me­di­aries; and In­ter­me­di­ary re­mu­ner­a­tion.

Marais says the RDR pro­pos­als seek to give in­vestors con­fi­dence in the fi­nan­cial ser­vices in­dus­try and pro­mote their un­der­stand­ing of what kind of ad­vice or ser­vices they are get­ting, how much it will cost, and how it will be paid for.

The RDR dis­cus­sion pa­per is open for com­ment un­til 2 March 2015.

Jeanette

Marais, Di­rec­tor

at Al­lan Gray.

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