You are Here > Home > Financial planning > Are you prepared to pay for advice?

Are you prepared to pay for advice?

Oct 19, 2016

There has been a lot of talk about the Retail Distribution Review (RDR) which aims to provide transparency around financial advice and products, but how do customers really feel about it?

rdrAt a roundtable discussion on RDR hosted recently by Liberty, Johan Minnie, head of Sales, Distribution & Bancassurance at Liberty said while questions are being asked as to whether or not the industry is ready for RDR, the real question to ask is whether clients are ready for it. With transparency in fees comes the awareness that advice is something you have to pay for.

As Minnie explained, currently the cost of advice is built into the commission which does not separate the cost of advice from the cost of the product. Experience in other jurisdictions that have introduced fee transparency has shown that when customers realise they are paying R5 000 for advice, they don’t see the value for something they thought they used to get for free. “Yet they will go buy the latest cellphone or spend that on a car each month that depreciates. The question is whether clients are ready for RDR.”

A case in point is a story told to me by a highly qualified financial adviser. She met with a woman who had recently been widowed and needed advice on how to invest the proceeds of her husband’s life policy to provide her with an income. Now this requires some high-level planning around cash flow analysis, potential returns, risks as well as understanding the woman’s financial needs.

The planner works on an advice fee as recommended under RDR and charges for a full financial plan but waives all upfront fees. The widow declined the service. A few months later the financial planner discovered that the widow had invested the entire amount in a single fund through a fund manager who made a total upfront commission of R30 000, let alone ongoing fees. A very rudimentary needs analysis had been done, just enough to tick the box. Because the widow was not prepared to pay upfront and separately for advice, she paid through her nose in a commission structure.

When it comes to transparency, clients themselves need to understand the value of advice, but they also need to feel that the products and services offered to them are relevant to their needs.

Catering to people’s needs

Gerald Mwandiambira, financial planner and acting head of the Savings Institute believes that at the heart of financial planning is the fact that it requires people to delay gratification and that is a challenge in a world where everything is about having something now. That is worsened by the fact that many individuals, especially in the mass, emerging market, do not see financial products as actually having a benefit because the products do not cater to their needs. “At this stage a funeral policy is the only product that is seen to meet a person’s key need. I hope that RDR leads to a new generation of products that understands the current landscape like the need to provide for extended family. Clients need to know what they are getting and that it is worth it. We have a market who want to create wealth but do we as providers really have the solutions? Can we create more than funeral policies?”

And then there is the role of basic financial literacy. While the RDR does make provision for providing simple, cost-effective solutions for lower-income earners, in most cases what clients really need is basic financial education like how to settle their debts. The reality is that the financial industry is facing a shrinking market. The more debt people have and the greater their financial stress due to lack of financial education, the less they have to invest and save. But this advice costs an adviser time.

David Kop head of advocacy and consumer affairs for the Financial Planning Institute believes that the financial planning profession should be giving back to the people it serves by providing pro-bono work and not charging for financial education. “We need to give information out for free and uplift the entire nation. This will enable the industry to create its own future clients. That is what we need to focus on.”

 This article first appeared in City Press.

0 Comments

Maya Fisher-French author of Money Questions Answered

Previous Articles

Self-service facility for GEPF members

Technology is making it easier for GEPF members and pensioners to keep track of their pension information and claims process. By downloading the new GEPF self-service mobile app onto your device, you can remove the frustration of standing in long queues at GEPF...

GEPF establishes complaints handling office

If you are struggling to get your claims processed or not receiving your benefits, help is at hand with the recent establishment of the Government Employees Pension Ombud (GEPO). The state is the largest employer in the country, and the Government Employees Pension...

More households supporting unemployed family

For many working South Africans, the pressure of financially supporting friends and family is unrelenting. Most of us have either experienced a job loss or have a family member who lost an income due to the extended Covid-19 lockdown. It is not surprising then that...

What is screen scraping and is it safe?

Screen scraping can be used by criminals to steal data, but financial services companies are increasingly making legitimate use of this too. Angelique Ruzicka investigates what the process entails and how consumers can protect themselves. Screen scraping can be hugely...

Are banks putting customers first?

Banks were in the spotlight recently with the release of the annual report by the Ombudsman for Banking Services (OBS) and feedback from the Financial Sector Conduct Authority (FSCA) regarding the banks’ adherence to the Conduct Standard. The draft Conduct Standard...

Should women celebrate community of property rights?

There has been much celebration around the protection of women in customary marriages with President Ramaphosa recently signing into law the amended Recognition of Customary Marriages Act. However, are these women fully aware of the implications, especially around...

Five tax myths many employees still believe

Tanya Tosen, Tax and Remuneration Specialist at Remuneration Consultants, addresses five tax myths that have become popular over the years. Many employees don't understand the complex tax calculations that payroll applies to their earnings each month and often...

Relief for struggling restaurants

Soft loans and payment holidays are available for restaurants still battling to survive the pandemic. At the beginning of May, my favourite local coffee shop closed its doors after 20 years of trading. My neighbourhood shopping centre, which caters to many “mom and...

Money and divorce

David Thomson, Senior Legal Adviser at Sanlam Trust, shares some practical tips about the financial side of divorce. The news of Bill and Melinda Gates filing for divorce after 27 years of marriage sent shockwaves through the philanthropic world. The couple is worth...

Lack of savings leaves SA vulnerable

A lack of emergency savings left households vulnerable to the economic shock of Covid-19. The last five years have been tough for South African consumers as salaries failed to keep up with inflation, unemployment grew, and debt levels increased. This left us extremely...

Pin It on Pinterest

Share This