Less than half of South African financial advisers are seriously planning for possible regulatory changes that may come about as part of a South African retail distribution review (RDR), according to views gathered from local advisers for a new survey.

This general lack of planning is likely to leave many businesses caught short when new regulations regarding the remuneration of financial advisers and the classification of advice come into effect.

The number of financial advisers in the UK has already dwindled down from 35,000 in 2010 to around 20,000 following RDR according to our UK division; and the industry here could face a similar fate.

It seems most South African advisers are burying their heads in the sand even though the Financial Services Board recently kicked off a full blown RDR, deciding that simply reviewing current remuneration models wasn’t going to be enough.

Considering over two thirds of businesses still earn the majority of their income through upfront or trail commissions according to CoreData’s Adviser 2013:  Looming Regulation & Business Change report, RDR poses a significant threat to the survival of financial advisory firms.

Some of the highlights from the survey include:

•  Despite the lack of future preparations, financial advisers in South Africa say the greatest challenge they are currently facing is changes in remuneration legislation with 57.9% ranking it the biggest hurdle over the next two years.
• The classification of advice between independent and restricted is the next biggest challenge they face between now and 2015.
• Only 12.8% of South African advisers currently work on a fee-based model that would require no adjustment post-RDR.
• Of those advisers that have begun to make changes to their business models, 40.4% are modifying their fee structure in preparation.
• Almost 60% of advisers currently class themselves as providing full independent advice, while 15.4% of advisers state they are restricted financial advisers. This spread could shift significantly in light of RDR.
• The main bulk of South African advisers have successfully made it through the first round of the FAIS assessments, however a quarter feel the second round of FAIS assessments is their greatest challenge over the next two years.
• The size of the advice market in South Africa, in terms of number of advisers, is not expecting any major contraction in the short-term as the majority of advisers (83.6%) plan to continue in their current role by the end of 2013.
• Over the next two years however, a quarter of advisers expect to leave their current role and in 3 – 5 years only half of advisers currently practicing expect to remain in the same position.
• Currently half of advisory businesses perform advice and asset allocation in-house. This is set to decrease by the end of 2013 and again in 2015.
• At the end of 2015 there will be more advisers performing advice in-house but outsourcing all investments to a DFM (35.8%).
• Currently a third of advisory businesses (32.1%) state they have no need for paraplanning services but by 2015 this sentiment almost halves to 17.2%.