Financial advisers will have to focus on the quality of their advice and will probably have to charge more or reduce their overheads, or both, if they want to remain profitable under the incoming Retail Distribution Review (RDR) regulations.
This is the view of Henry van Deventer, wealth strategist at Old Mutual Wealth, who says that if the implementation of RDR in the United Kingdom is any indication, the biggest impact in South Africa is likely to be felt when the manner in which financial advisers are remunerated comes into effect.
“The intention of the Financial Sector Conduct Authority is to shift to an environment where advisers are not remunerated by product providers, but by clients agreeing to pay a fee. In short, this means commissions and rebates on investments will be abolished, and there will be a significant reduction in up-front commissions on life insurance products.”
Van Deventer refers to a survey conducted by the Financial Planning Institute among its approved financial planning practices “to gain insight into what our differences are (pre-RDR) relative to similar firms in the United Kingdom, where RDR was implemented five years ago. It gives South African advisers a unique look at how our businesses will need to evolve in order to prosper in a post-RDR world.” he says.
“In South Africa, 77% of financial planning businesses are running at profit margins of less than 20%, whereas 48% of UK businesses are running at profit margins of more than 20%. Of these, half run at a profit margin of more than 30%.