“Essentially, RDR means there will be more cake to eat for the independents. Advisers who remain independent and who are well qualified and professional will probably attract wealthier clients, many of whom often prefer to deal with IFAs rather than the big corporates.”
Independence costs
Smorenburg says some of the existing 5,000 independent advice firms in South Africa might decide against remaining independent because of the large costs involved, and therefore join big corporates instead.
Alternatively, others might choose to join together with other independents to minimise the compliance and governance expenses.
“None of these are problems but options,” he says. “Advisers are going to have to consider these options when RDR gets rolled out.”
But while he said this regulatory switch-up is not necessarily a bad thing, he added that the independently owned sector is an important element to ensuring consumers have choice and maintaining balance.
He also recognises that helping to keep the independence of firms pumping is important because clients tend to get a more rounded service through those advisers who are not tied to large institutions.
“Being able to utilise more than one particular service provider means an IFA can recommend a combination that better suits clients’ needs and requirements, rather than using one service provider that provides just one set of services and products.”
One voice
Essentially, SAIFAA is all about power in numbers, ensuring its 76 members get a good deal by taking a stand as a single body. “If independents all stand together they can learn together, communicate with the regulators and better negotiate with the service providers,” he says.
While South Africa might be a step behind in terms of RDR regulation, Smorenburg said the country is ahead of the times when it comes to ensuring advisers are educated and licensed appropriately, while also ensuring compliance checks are undertaken by the regulator.
“South African advisers have a positive reputation due to previous steps taken by the regulators,” he says. “In 2002, advisers were forced to become regulated through examinations, which was a step in the right direction.
“The RDR will increase the professionalism of advisers by looking a lot closer at the relationship between product providers, the clients and IFAs, and making it clearer who is independent and who is tied.”
Fiercely independent
Smorenburg says that, historically, independents have been “fiercely independent”, holding this position by choice, despite the ever-increasing cost of compliance and governance.
“The investing public, regulators and the government need a robust, healthy financial services market.”
However, Smorenburg argues there is a downside to this fiercely independent attitude that has caused “somewhat selfish independents” to refuse to stand together.
