Johannesburg, Gauteng, 17 October 2016 – In November 2014 the Financial Services Board (FSB) published the Retail Distribution Review (RDR) discussion paper, which proposed far-reaching reforms for the insurance industry. While the effects on the long-term insurance industry were evident, there was less clarity on how RDR would impact the short-term insurance industry.
Through the Financial Advisory and Intermediary Services (FAIS) Act, vast progress has been made in raising intermediary professionalism, increasing and improving disclosure to clients and mitigating conflicts of interest. However, what persists is poor customer outcomes and the mis-selling of financial products.
“The purpose of RDR was to introduce a set of structural interventions that would ensure that financial customers in South Africa received fair outcomes when buying financial products,” says Sujeeth Bishoon, Executive Head at Acuideas. “There were 55 regulatory proposals put forward that would be implemented in a phased approach.”
The fundamental issues being addressed by RDR are the services provided by intermediaries, product supplier and intermediary relationships and intermediary remuneration. RDR proposes that the commission structure for financial advisors be structured differently, in order for customers to have a better understanding of the type of advice or service they are receiving and paying for. In addition, the customer must be aware of the costs, must understand how it will be paid for and they must have confidence that their advisor is acting in their best interest when providing advice.
“Of course there are challenges to RDR and some brokers are struggling with the regulatory changes, but RDR should improve the advice given to a customer, while at the same time disclosing the value of advice given by a financial advisor. The Acuideas value proposition would enable the smaller, long-term insurance brokers who want an alternative revenue channel, to enter the short-term insurance market. The short-term and long-term insurance landscapes are different, and extensive training would be required for such brokers to be in a position to advise policy holders appropriately. However, with Acuideas as a partner, these smaller insurance brokers and financial advisors can easily adapt and adopt this new revenue stream,” says Bishoon.