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Cost of investment products could be impacted

Oct 28 2015 19:34

Johannesburg - The introduction of the Retail Distribution Review (RDR) anticipated for the last quarter of 2016, will no doubt bring greater clarity to the cost of investment products, but may create an advice gap according to Sable Wealth’s Mike Abbott.

The industry is well aware that the implementation of the RDR will bring about the banning of commission, introduce fee-based advice, unbundle the investment value chain (adviser, platform, fund manager), institute exams (Statement of Professional Standing), implement standards based on remuneration structures and provide clarity on independent, multi-tied and tied advice.

For the consumer, this well could result in a dearth of financial advice.

“Providers will have to introduce various levels of advice from DIY platforms to fee-paying advice by qualified and experienced Financial Advisers (FA), and a number of other ramifications,” said Abbott.

According to Abbott, the likely knock-on effects include:

- Clients become aware of all costs in the value chain (adviser + platform + fund). He said very few clients are aware of what they’re paying for in their invesment;

- Consequent growth in passive investment solutions;
- Higher compliance cost for independent FAs;

- Consequent reduction of adviser numbers;

- Banks moving out of independent advice into tied or multi-tied;

- Banks restricting advice to high-net-worth clients only;

- Growth of non-advice online tools provided by large banks or investment houses;

- Price war between platforms;

- Death of the financial product salesperson;

- Rise of the “financial planner” and the advice profession;

- Price comparison local versus offshore.

In his view the SA market will struggle to compete with the UK on price for all areas of the value chain.

“The RDR has been introduced in various forms around the world and SA is implementing the standards in it’s purest form and I don’t believe that the FSB has the resources to implement the compliance, training and watchdogging required to implement in 2016,” said Abbott.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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