Lessons learned from Retail Distribution Review implementation in the UK and how they translate to the SA market

Fintech solutions provider Bravura Solutions, in collaboration with NextWealth and The Collaborative Exchange, released a white paper that is set to help usher financial advisers into a post-Retail Distribution Review (RDR) future by analysing the lessons learned from RDR implementation in the UK and how this translates to the South African market.

The incoming RDR proposes significant regulatory reform in South Africa, much like it did in the UK. While RDR aims to ensure the delivery of fairer customer outcomes, it will have wide-reaching consequences for financial advice businesses in South Africa.

Entitled ‘Supporting South Africa’s journey to a client-focused and transparent financial advice market,’ Carolyn Erasmus, Bravura country head for South Africa, says “This white paper serves to pre-arm South African financial advisers with the key points to succeed in what will be a new era for our industry due to the introduction of the RDR regulations.”

“There is no doubt that the financial services market is unique and fired up by passion, new challenges and immense opportunities. The changes that are being brought about by the RDR regulations, however, are not all that new – certainly not for a global company like ours with a significant footprint in the UK,” says Erasmus.

RDR has been active in the UK since 2012, and although its objectives for improved client outcomes were clear, Erasmus believes there are unintended consequences and lessons that South Africa can learn to gain the second-mover advantage.

The paper highlights five key changes in the UK market that can be traced back to RDR. These changes include: 

1. The growth of centralised investment propositions

In preparation for RDR in the UK, many advice firms began to change their business models to offer a Centralised Investment Proposition (CIP) or standardised approach to providing investment advice. In 2020, at least 80% of advice firms in the UK worked to a CIP.

2. The increased cost of compliance 

The cost of compliance has risen significantly since the introduction of RDR in the UK and continues to rise. Businesses have to allocate time and resources to comply with regulatory changes, which impacts the cost of advice.

3. A shift from advice to planning propositions

The UK market has seen a shift from traditional product-based advice, from advisers focused on selling products to many offering a more holistic financial planning service and defining themselves as financial planners. 

4. Growth of financial planning technology

The pressure to improve efficiency and productivity to protect profit margins, coupled with an expanding range of services and tools to meet the demands of modern financial planning clients, has led to a growth in uptake of financial planning technology by advice businesses in the UK.

5. Consolidation and vertical integration 

RDR prompted a trend towards consolidation of advice businesses and, more recently, larger providers buying or launching advice departments. As a global technology partner to financial services providers, Erasmus says Bravura Solutions has supported UK businesses in preparing for and adapting to the RDR rules. This latest white paper shares the company’s experiences and key considerations for the adviser market, following the UK’s example.

Erasmus says the outlook is positive for South African financial advisory firms. “Together with our partners, we have gone to great lengths to outline some points of success for advice firms in South Africa. RDR is an opportunity, and the UK provides a roadmap to success.”