South Africa’s Retail Distribution Review process gains momentum

Industry associations such as the Association for Savings and Investments in South Africa and the Financial Intermediaries Association of Southern Africa (FIA)—in recognition of the complex nature of the domestic market for insurance and investment products—have already approached the regulator for additional time to consider the impact of the RDR and formulate their responses to it. RDR is the latest instalment in a host of financial services regulation aimed at entrenching customer protections and reducing conflicts in the financial advice space. It follows the 2004 implementation of the Financial Advisory & Intermediary Services Act and the ongoing Treating Customers Fairly regime, based on the UK intervention of the same name. The paper defines many aspects of financial advice and expands on the remuneration models that the regulator believes will ensure sustainable advice practices. RDR impacts on intermediaries in the investment, life insurance and short-term insurance disciplines, though many believe financial planners will be most affected. Proposals include doing away with commission for pure investment products and changing the mix of up-front and ongoing commissions for life products.hideArnold van der Linde, President of the FIA, observes that until such time as the RDR proposals are discussed and considered there is nobody, not even the regulator, who can say with certainty what the eventual legislation will look like. The RDR process will have to run its course to include a window for public comment, the publication of draft and final regulations and then a sensible timeframe for its implementation. “The FIA’s objective in its engagement with the regulator will be to ensure the sustainability of financial advice,” says Mr Van der Linde. “We will inform our interactions with the regulator through wide consultation with our membership and also draw on experiences in other markets and economies—we must remind the regulator that the exit by any financial services provider due to regulatory constraints leads to fewer choices for consumers.” Financial services providers will have to be vigilant to ensure that the legislation accommodates consumers without harming the financial adviser community. Important aspects that need attention include proposed reductions in income that could render advice practices unsustainable and the possibility that few advice practices could qualify as independent financial advisers under the current definitions. South Africa has set out on a long and challenging journey that will redefine how consumers, intermediaries and product providers transact for insurance and investment products. The end goal is a sustainable model for financial advice that will improve access and ensure fair treatment for South African consumers. “The FIA represents members in every category of insurance so it is our duty to engage the FSB to make sure that our client—the adviser, and their clients—the consumer, emerge from RDR with a better future,” concludes Mr Van der Linde. “We must make changes to ensure the sustainability of financial advice-giving, offer wider protections to consumers and maintain healthy free market competition.”

South Africa’s Retail Distribution Review process gains momentum

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