Financial advisers in Johannesburg appear to be ahead of their Cape Town counterparts when it comes to being prepared for the roll out of South Africa’s Retail Distribution Review.
International Adviser hosted its annual International Investment forum in the two cities in mid-May and took the opportunity to survey delegates about their views on recent regulatory changes.
The Burg verses the Cape
RDR is being introduced in three stages, with the deadline to comply with phase one set for the end of 2019.
The second phase is expected to commence in 2020.
So, using IA’s anonymous polling app – delegates were asked: How much of a priority is RDR currently for your business?
Taking into consideration the staged nature of its introduction, advisers were able to choose from four responses:
| Johannesburg | Cape Town | |
| If introduced tomorrow, we are 100% ready to go | 37% | 25% |
| Still important but other things are taking precedence | 33% | 40% |
| We don’t know exactly what is expected of us, so we’re waiting for clarity | 30% | 31% |
| We have not even started preparing yet | 0% | 4% |
Taken as a representative sample of each city, Cape Town advisers appear to be taking more of a wait-and-see approach when it comes to RDR.
Risky strategy?
The phased nature of the roll-out carried the risk that firms would become complacent, as two years to get ready for something seems like a very long time.
The danger now, however, is that some firms have not left enough time to ensure they are compliant.
Additionally, given the lack of clarity expressed by roughly a third of advisers in each city, there does seem to be some confusion as to what exactly it is that they need to be doing.
Political turmoil and economic issues have dominated the headlines of South Africa since long before RDR was first tabled in 2014.
While the South Africa regulator may have been wise to give firms more of a slow adoption, there was the risk it would lose any burning sense of urgency.
As evidenced by two-in-five Cape Town advisers and a third of those from Johannesburg who are giving priority to other things.
Two is better than one
One of those ‘other priorities’ was likely the introduction of Twin Peaks, which went live on 1 April 2018.
It saw the creation of a prudential regulator – inventively called the Prudential Authority – which is housed in the South African Reserve Bank (Sarb).
The other ‘peak’ is the Financial Sector Conduct Authority (FSCA); which saw its predecessor, the Financial Services Board (FSB), given a new name and a new mandate.
The FSCA has three key objectives:
- Ensure that financial institutions treat customers fairly;
- Enhance the efficiency and integrity of the financial system; and,
- Provide existing and potential financial customers with education programmes, and otherwise promote financial literacy and capability.
The question posed to the audience at both events was: How much of an impact has Twin Peaks had on your business?
Again, delegates were given four responses to choose from:
| Johannesburg | Cape Town | |
| More than expected | 6% | 6% |
| As expected | 10% | 20% |
| Less than expected | 29% | 27% |
| Too early to tell | 55% | 47% |
The clear response was that, a little over a year post-implementation, the success of Twin Peaks is still up for debate.
While only a handful of respondents felt that there was more of an impact on their businesses than they had expected, the strongest response from both events was that it is too early to tell.
The FSCA is likely still finding its feet and could easily decide to take a more hard-nosed approach to regulating the financial advisory sector. Additionally, it could keep its current light-touch.
Only time will truly tell.
Moving forward
The recent national election put to rest the questions of who will govern and how strong will their mandate be.
But it would be unwise to assume that any sense of political stability – no matter how fleeting – will mean that RDR and Twin Peaks will be the last regulatory hurdles thrown at the sector.
So far, South Africa has been on the right side of history when it comes to protecting clients and has moved more quickly than other jurisdictions to do so.
As other countries have discovered, however, the pace of regulatory change rarely slows and it will be of great interest to see what the government, Sarb, the FSCA or the South Africa Revenue Service (Sars) come up with next…
