Speaking in the firm’s South African Insurance Industry Survey 2016, Michelle Dubois, a senior financial risk manager at KPMG, said advisers need an “out with the old and in with the new” approach to their business.
“It’s a whole new world out there for the financial adviser who is willing to evolve his practice.
“Many advisers will tell how they have spent years perfecting their sales skills. No longer content with a compelling sales technique, the adviser of the future needs to create and, more importantly, constantly validate a value proposition that is beyond fault,” she said.
Brian Foster, founder of Brian Foster Coaching & Consulting, says: “The problem for advisers is that this isn’t really a regulation problem, it’s a business model problem.”
He added that RDR raises a key two-part question: how do advisers persuade clients to pay for advice, and how do they make it profitable?
Dubois believes a growing annuity income will mean that advisory businesses will be more resilient to cash flow problems, explaining that research shows that clients are more likely to favour a fee model which charges on a per task basis.
“Advisers who choose to embrace this model sooner rather than later will be more likely to transition successfully,” she said.
Last week, South African regulator, the Financial Services Board (FSB), confirmed to International Adviser that the first phase of the RDR, due to be implemented this month, has now been postponed until next year.
Spike in new premiums
Insurers in South Africa saw an 11% spike in gross written premiums for 2014/15 despite “tough” economic and political conditions, the report by KPMG shows.
The survey found that gross reported premiums from the country’s most prominent insurers rose 11.4% from ZAR80bn ($5.6bn, €5.07bn, £4.3bn) in 2014 to R89.1bn in 2015.
However, the profits of all insurers were hit hard, declining from ZAR45.8bn in 2014 to ZAR31.3bn in 2015 – mainly down to the “fair value movements” on investments within larger life companies.
Giving Old Mutual’s as an example, Gerdus Dixon, KPMG’s national head of insurance said the insurer’s strategic holding by its life company in Nedbank Group is valued ZAR5.2bn lower year-on-year following investors’ aversion to bank holdings in 2015.
Another example, he said, is the carrying value of Sanlam’s investment in Santam that decreased by nearly ZAR2bn based on the share price movement on Johannesburg stock exchange.
It comes despite the rand depreciating against the dollar 34% for the year, going into freefall in December 2015 after the South African president Jacob Zuma appointed three different finance ministers within a week.
Zuma fired his well-respected finance minister, Nhlanhla Nene, out of nowhere, replacing him with an unknown former mayor before also dismissing him to appoint current finance minister Pravin Gordhan.
In addition, rising unemployment and the worst drought in the last century have seen brokers in South Africa revisit business models as clients question fees, which have been on the up for years.
Despite the investment volatility insurers still reported a 5% increase in total assets year-on-year, with South Africa’s largest insurers in terms of assets Old Mutual Life Assurance Company revealing it has ZAR619.8bn of total assets.
Money from individual single and recurring premiums increased by 13%.
