Fintech provider Bravura Solutions has released a white paper that aims to unpack the potential impact the incoming Retail Distribution Review (RDR) will have on financial platforms by outlining lessons learned in the UK.
The Retail Distribution Review (RDR) was implemented in the UK on 31st December 2012 with the ambition to improve transparency in the investment industry; boost the professionalism of financial advisers through higher qualifications and standards, and to help consumers access unbiased and clearly priced advice and investments.
South Africa’s long-awaited RDR legislation, with broadly similar principles to the UK, is on the horizon and financial advisers and wealth managers are refining their business models and client propositions ahead of its full roll-out.
According to Carolyn Erasmus, SA Country Head, Bravura Solutions, these technical changes will have wide-ranging implications. “Following the UK’s experience, financial advisers and investment platforms will need to demonstrate clear value to their fee-paying customers. While the implementation of RDR can feel like an obstacle, it is actually an opportunity. The unbundling and transparency of pricing under the RDR inevitably means more focus on platform charges and less tolerance for inefficiency throughout the value chain.”
The report outlines how RDR was hugely positive for UK platforms, elaborating on how they are now an essential component of the financial adviser proposition. “South African platforms will need to rapidly shift their business models away from accepting fund rebates to a clean, percentage fee to the end customer. This will involve the provision of clean share classes and unbundled pricing,” says Erasmus.
The report highlights key challenges that investment platforms will face from RDR and beyond, which include:
Technical expertise – Platforms will need align specific functionality to support financial advisers as they take on more of the responsibility for managing clients’ investment journeys.
Pressure on prices – Platforms can expect intense price pressure from financial advisers, who will negotiate hard on behalf of clients. Operational efficiency is key to surviving a shift in the value chain.
Future regulatory change – More regulatory change is always on the horizon, and each brings its own non-negotiable, unavoidable functionality requirements for platforms.
Investment propositions – Platforms can a expect advisers to shift emphasis from fund-picking to financial planning where investment management and model portfolios are outsourced. Discretionary Fund Managers (DFMs) now rely on platforms for performance reporting and to facilitate fees.
Technology – Platforms will need to build add-on tools and enable a growing number of best-in-breed advice and in-house systems to be integrated for straight-through processing. Fit-for-future platform technology will depend on a more open and nimble development approach than has characterised platform evolution to date.
Innovation beyond meeting regulatory requirements – platform businesses must consider not only the “hard” changes brought about by regulation and requiring additional technical solutions and tools, but also the “softer” elements of organisational change needed to improve their systems.
In an ever-shifting and unpredictable economic landscape, Kevin Hinton, Director of The Collaborative Exchange, says these challenges should be easily met by platform providers as they were in the UK. “South African platforms are in an interesting space at the moment – they have had to accommodate unrelenting regulatory changes due to RDR and other matters. Old technology now needs to be updated to keep abreast with ongoing developments and we see a number of SA’s large platforms now having to “re-platform”. This is costly and fraught with technological challenges, so it is going to be very interesting to see how this development unfolds with the local industry.”
Download the Platform Evolution through the RDR and beyond: Lessons from the UK experience report here