RDR status update
31 Jul 2019
As a client of financial services products, it is important that you understand the new developments in the realm of the Retail Distribution Review (RDR). The FSB, now called the FSCA, published several RDR progress reports, updated proposals and specific regulatory measures through different regulatory tools.
RDR forms part of the Treating Customers Fairly (TCF) initiative, which Liberty takes seriously as it ensures the fair treatment of you, our clients. It is important that you are made aware of these developments as it impacts the relationship with your Financial Adviser.
What are the objectives of RDR?
- To support delivery of suitable products and advice.
- To allow customers to make informed decisions.
- To enhance professionalism in the financial services industry.
- To promote fair competition.
- To promote sustainable business models, including those of financial advisory services.
Where do we stand now? The last status update was published in June 2018 and categorised 55 proposals in terms of their development status. Some categories have been scrapped, others are still being developed and some have already been implemented through a multi-year regulatory reform process.
There are certain aspects affecting Financial Advisers that are now operational, in progress or in the advanced stages of formal consultation.
Adviser categorisation This proposal is still under consideration, is being field tested before implementation and holds the key to several other developments, including accountability for advice. The initial proposal contained details of three types of advisers.
- Tied agents - Advisers linked to a specific financial services provider
- Independent brokers - An individual or firm that sell financial services solutions
- A hybrid model for those not fitting into one of the first two
Feedback from the industry made it clear that this would confuse the public, rather than clarify whom they were dealing with. The current thinking, which is likely to be implemented, provides for a Product Supplier Agent (PSA) or a Registered Financial Adviser (RFA), although these titles are still being consumer-tested. Very specific criteria will be published in terms of these functions.
Responsibility for advice or services Product suppliers will bear full responsibility for the advice provided by their tied agents in accordance with ordinary agency principles. Independent brokers, or RFAs, will be responsible and accountable for the outcomes of advice provided by their businesses.
Fees for activities / service A substantial amount of research is being conducted on “intermediary activity segmentation” to establish fair compensation for services rendered to different parties. This will inform standards to be set for financial planning, upfront and ongoing advice fees as well as client servicing.
Of interest to clients and advisers is the consideration of facilitation of advice fees by product providers, as is the current procedure. Although the RDR proposals make provision for strengthened remuneration disclosure requirements, this can still be facilitated by the product provider. As soon as new developments on this arise, we will communicate with you.
Similar research into the activities of short-term insurance intermediaries will eventually distinguish between advice and after-sales service. The so-called Section 8(5) fees have been repealed and replaced with PPR provisions stipulating circumstances in which fees, other than commission, may be paid.
The future of RDR Some of the original RDR proposals have subsequently been introduced via amended FAIS Fit and Proper Requirements, the amendments to the Long- and Short-Term Insurance Acts, Regulations and Policyholder Protection Rules, as well as the proposed changes to the FAIS General Code of Conduct.
At the moment, the provisions of the revised Fit and Proper Requirements, published in December 2017 (and including Class of Business [CoB], Product Specific and Continuous Professional Development [CPD] training) are proving to be far more pressing practical issues.
It is also important to understand that RDR is not going to happen on one specific date. In fact, many of the proposals have already been implemented without reference to their RDR origin, including the capping of commission for credit life insurance schemes.
Look out for further updates on RDR as and when these arise.
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