In 2014, it was declared that South Africa would be undergoing a Retail Distribution Review (RDR). This was the beginning of a massive change within the realm of financial services, especially in terms of providing financial advice and encouraging fair competition. However, five years on and it would seem that the implementation of RDR has been a lot more gradual than originally expected.
Many investors and financial services providers have been lulled into a false sense of security thinking that the RDR might not have as big of an impact, after all.
It is during these times that we need to look to other countries that are further ahead in the process, such as the UK, for answers.
What can South Africa expect in the months and years to come?
If it is true that South Africa’s RDR experience is set to look similar to the experiences of other countries, then there is no escaping the fact that the future of financial advisory in SA is going to significantly different.
For example, the United Kingdom has seen numerous financial advisors adopting of centralised investment propositions (CIPs), which is essentially a standardised approach to investment offerings calculated according to the risk profile of each prospective client.
Another distinct change noted in the UK is the fact that several advisors are beginning to outsource the management aspect of client investments, often through Discretionary Fund Managers, also known as DFMs. In South Africa, there are currently around 40 local DFM businesses, of which there are four main ones. These four DFM firms are currently accounting for an estimated 70% of the market share. Ultimately, this is set to ensure that the investment industry is going to begin to ‘narrow’ and become more centralised. This will have far-reaching consequences for asset managers, particularly around fee pressure and attracting new clients.
The secret to surviving the coming changes as an asset manager is to provide clients with a clear value proposition and superior performance.
Uncertainties relating to COVID-19 that are likely to affect investors
Obviously, along with the RDR, the economic effects of the COVID-19 pandemic is going to have a drastic impact on investors and investments within South Africa. There are several uncertainties to consider which will determine the severity of this impact.
The first is that of how bad the pandemic becomes over the next few months, as well as the pattern of disease progression. Secondly, how the healthcare system is able to respond to and handle the crisis will make a difference in how the economy copes. Finally, the level of social cohesion that our country manages to muster throughout these difficult times will have a significant effect on what investment potential is likely to look like in the future.
Jason Scholtz is the CEO of Envision Investments and is a formidable thought leader within the property and strategic investment industry in South Africa. For further investment tips and an insider’s look into the South African business and property world, get in touch today!