Are SA consumers ready for the financial services shakeup that lies ahead?

Liz Budhram

Consumer education is key to success of proposed changes

The South African financial services sector is undergoing major changes as the industry prepares for the introduction of the Financial Services Board’s Retail Distribution Review (RDR). However, many consumers – the primary intended beneficiaries of the regulatory overhaul – remain largely unaware of what RDR is and how it will impact them once implemented. The Financial Services Board (FSB) noted in its most recent status update that consumer education will be essential for RDR to achieve its objectives.

Lizl Budhram, Head of Advice at Old Mutual Personal Finance, says that while implementation of RDR will be gradual, it is important that consumers take heed of the changing environment to ensure they are equipped to achieve the best outcome available to them in the future.

“For consumers, the greatest change triggered by RDR will be the clear demarcation of fees for financial products and financial advice. Currently, when a financial adviser offers a customer a product, the premium includes commission that covers the financial advice. In future financial advice will become a separate commodity entirely, and be charged as such. A consumer will be able to select the financial service they want,” explains Budhram.

What this means, according to Budhram, is that consumers will ultimately be offered a greater choice in terms of the value they receive from financial advisers and the fees they should pay for services. This choice improves transparency, empowers the consumer and strengthens the relationship with their financial adviser. Prices will also be more closely aligned to the nature and quality of the service. In other words, you’ll be paying exactly for what you get.

“However, to make informed decisions, it is imperative that consumers understand the types of advisers and advice available to them in addition to the value of this advice.”

Given the industry’s impending shift, Budhram says that empowering consumers is more important than ever.

“We need to encourage consumers to become more financially savvy. It is worrying that according to the 2016 Old Mutual Savings & Investment Monitor (OMSIM), only 6.2 out of 10 consumers feel confident in making financial decisions. The survey also found that 5.7 out of 10 consumers are currently satisfied with their financial situation.”

Budhram says that Old Mutual is already making strides to drive advice-led conversions with its customers in anticipation of the implementation of RDR. It has invested in significant consumer financial education initiatives which are both digital and classroom based. In 2016, the company contributed R27m toward financial education and 155 000 South Africans attended financial education workshops.

One initiative that is helping to drive financial understanding in South Africa is Old Mutual’s interactive digital financial education platform called Moneyversity (www.moneyversity.co.za), which Budhram describes as a one-stop destination for consumers seeking to better understand and manage their personal finances. “Moneyversity aims to educate the consumer on various aspects of financial planning, which includes creating awareness and understanding around the value of financial advice.”

The company is also driving its adviser force to adopt a more holistic financial planning approach including building a diversified portfolio to meet all client needs.

Another point which Budhram raises is that, in a post-RDR world, when financial advice is seen as a separate commodity, consumers must be encouraged to seek the services of a reputable brand. “As financial advice will be monetised, consumers should approach a trustworthy brand as a professional service provider that can be held accountable for the financial advice they provide.”

Budhram concludes by reinforcing the fact that RDR has always been driven for the primary benefit of the consumer and should be embraced for this. “RDR aims to ensure that the consumer is positioned at the heart of the financial services industry, and through improved levels of transparency, increased accountability and, most importantly, better financial education, South African consumers should feel empowered to make better choices within the retail investment market.”