At the Discovery Financial Planning Summit, held on 19 May 2015, Mr Jonathan Dixon of the FSB shared his views on some of the feedback received from the industry on the Retail Distribution Review proposals.
While it is early days in our analysis of the comments that we received on our proposals, it is possible to identify a few common themes.
While there was quite strong general support for the objectives of the review, there were some areas where industry commentators differed on the best way to achieve these objectives.
In particular, decisions on categories of advisers, and the consequences for product supplier accountability, will have knock-on implications for a number of other areas, such as permissible outsourcing and cross-ownership arrangements.
Some of the concerns voiced also focused on the scale of change that we are proposing and called for a phase-in approach to avoid disruption in the market. I can assure you that we have already clearly acknowledged the need to look carefully at transition measures and to conduct further research on how we phase-in changes over time so as to continue to support the sustainability of advisory businesses.
There were also questions about how RDR will change the distribution landscape in South Africa and whether all these changes will necessarily result in better customer outcomes.
One of the main themes coming through the industry feedback has been a concern with the three new adviser categories we outlined. It was pointed out that it may be difficult for customers to differentiate between these categories, and that the labels may not be helpful to customers.
We have therefore started to think about the possibility of drawing a distinction between the different adviser categories used for customer disclosure purposes, versus those used for purpose of regulation of product supplier responsibility.
In particular, the point was made that, if our aim is to help customers understand the nature and scope of advice services that they are receiving, then we need to make sure that whatever labels we attach to this – such as “independent” or “tied” – need to be meaningful to customers.
I am of the view that this is an area where we will find common ground and, in fact, we already agreed on the need to undertake further consumer research in this regard.
Secondly, commentators argued that the key measure of “independence” for regulatory purposes should be limited to freedom from product supplier influence, and that the second criterion, namely a minimum range of products/product suppliers, should be scrapped.
This is an area that we are going to have to explore further, but it is a good starting point that there is a consensus that greater product supplier influence comes with greater accountability for advice.
Another far-reaching comment is that the prohibition on financial advisers rendering outsourced services on behalf of product suppliers should be limited to independent financial advisers (IFAs), but permitted for multi-tied or tied advisers, on the basis that conflict can be addressed through disclosure and product supplier accountability.
These arguments came particularly from the Collective Investment Services industry, who argued that 3rd party CIS portfolios can be beneficial to clients.
While there is certainly some merit in these arguments, it raises some very fundamental questions around the extent to which we want to entrench a level playing-field between IFAs and tied advisers. While not prejudging the outcome of the deliberations, I will say that I personally think we need to reflect long and hard on what the long-term implications for the financial services landscape may be if we tilt the balance of financial adviser interests towards a tied distribution model.
On Monday, we will share Mr Dixon’s feedback regarding the various remuneration models proposed in the RDR discussion document.