With the South African Retail Distribution Review (RDR) just around the corner, firms must prepare. In this article, I share some of my thoughts on what to do to get ready for the introduction of RDR, and what it might be like.
Many firms are waiting to see what the regulations bring, but the problem for advisers is that this isn’t really a regulation problem, it’s a business model problem. There are two key questions RDR raises: how do we persuade clients to pay for advice, and how do we make it profitable?
The answers to those questions really have nothing to do with regulation.
Like most financial advisers, I was trained by the industry to sell products for sales commissions. This is still happening today. I spent the first 10 years of my career learning how to sell products, and the next 15 years learning how to get paid for delivering advice and how to operate a profitable business.
There is a big difference between turnover and profit, and I want to provide an overview of what I see as the six steps firms need to take to get themselves ‘RDR ready’.
1. Who do you have in your business?
The industry has taught financial advisers to prospect for anyone with a pulse, and many firms have ended up with a diverse range of customers and clients, some of whom are profitable and some of whom are not.
Once you understand who you have in your business, what you have been doing for them and how much you get paid, you will begin to see the brutal reality of what profitability means. You will start to identify what a good client looks like for you, so you can go and find some more, and think about what to do with those that are less than ideal.
2. Understanding what clients really want
We are going to need to be clear about the value we add to clients, and be confident when answering the client’s question, ‘What do I get for my money?’
You may think your services are highly valuable (and they are), but can you package them in a way that convinces your clients and persuades them to willingly pay for those services? It helps if you understand who your ideal client is, and you may need to ask them what they really value.
