RDR set to improve industry’s client focus
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.
at Allan Gray.