As the implementation of RDR draws closer, financial advisers around South Africa are putting a great deal of thought and effort into their plans to adapt to the new requirements. There are ongoing debates around issues such as the classifications of advisers, remuneration models and the cost of compliance.
However, a recent study by PwC raises an interesting question: In the discussions around RDR, are advisers neglecting a critical consideration?
“Going through the FSB’s proposals as an industry, we get stuck on how we will have to comply, what technology changes we will have to make, and all the things we have to do,” says Rachelle Best, associate director at PwC. “But we often forget what our customers are asking for, and what they will want post-RDR.”
RDR is, after all, really about how financial advisers interact with their customers. Advisers’ strategies for a post-RDR world therefore need to start with understanding the people they are serving.
This is a very necessary shift. For years the financial advice industry has used a predominantly top-down model of telling people what they need. RDR requires a new kind of thinking, which starts with finding out what customers want.
“Clients want to know that you will do whatever is necessary to help them make the right financial decisions,” Best argues. “And they want you to help them to find a solution that is appropriate and affordable.”
PwC surveyed thousands of customers to find out their perceptions of financial advice, what they value, and how much they are willing to pay. It found that a significant number of consumers are very satisfied with the advice that they receive and are also willing to pay for it going forward. However, there are also a number of softer issues that they value highly.
For a start, the understanding of the current commission model does not appear to be all that good.
“What is clear is that increased disclosure is not necessarily going to fix whether customers understand what they are paying for,” says Best. “It needs consumer education – sitting down with the client and explaining what you do and how they are paying for it.”
Customers also want more than just guidance on the end products and solutions. They want confidence in the process as well.
“People value having terms and conditions explained to them,” Best said. “They trust the person sitting across the table form them to make sure that the document that they are signing is in line with their expectations.”
These issues raise what is essentially the key theme of RDR: what is best for the customer is not necessarily that they pay less, but that they receive value for what they pay.
This was further illustrated when PwC tested what customers are willing to pay for by offering them different solutions at different price points. For instance, how much more would they be willing to pay for a fully independent adviser as opposed to a tied broker, or for someone with an entry-level qualification, as opposed to an expert one?
“Do your customers differentiate between financial planning and product recommendation?” Best asks. “Do they understand the value in each? Do your customers even know there is an entry-level qualification required? And if you have an expert qualification, do you tell them that?”
The lesson is that advisers need to identify the ‘sweet spot’ where there is maximum willingness to pay and craft a value proposition around that.
“People are prepared to pay more once they perceive the value to be more,” she says. “It’s all about how you present yourself as an expert.”