The trend for financial advice firms to outsource investment selection to discretionary fund managers (DFMs) is being fuelled by the RDR in South Africa and the pressure is on for platforms to enable growth, according to a new report from Bravura Solutions in collaboration with UK research specialist, NextWealth and management consultants, The Collaborative Exchange.

The report, Platform evolution through the RDR and beyond: lessons from the UK experience is available to download here.

Carolyn Erasmus, Country Head (South Africa), Bravura Solutions comments: “In South Africa, the RDR is driving a move towards fees rather than commission for many advice firms and this is impacting how they structure their investment propositions. Many of the large financial advice firms in SA have already found solutions with DFMs and it’s highly likely that we’ll see a mirroring of what has happened in the UK with firms of all sizes. For this to happen though, platforms will need to have the right tech in place.”

For many UK advice firms, meeting the RDR criteria placed a heavy burden on the investment selection process, as it required independent advisers to demonstrate whole of market research and suitability.

In reviewing business models, many advisers decided to separate investment selection and the process of financial planning. Post-RDR, the UK saw an increased use of packaged solutions, outsourced investment management and model portfolios.

Results from NextWealth’s Financial Advice Business Benchmarks report, show that the most widely used investment solutions by UK advisers are multi-asset/multi-manager funds and model portfolios outsourced to a DFM.

Heather Hopkins: “The RDR in the UK led to a significant rise in centralised investment propositions. In 2020, at least 80% of UK advice firms had adopted a centrally-managed and standardised approach to delivering investment advice. The main driver for the change is to de-risk client portfolios and the financial advice business. Financial advisers are focusing on planning rather than fund-picking and this is a trend that is already evident in SA.”

Carolyn Erasmus comments: “The impact for UK platforms has been immense and has given platforms an entirely new entity to cater for in their proposition. Most platforms were set up to allow management at the client level. DFMs need to manage assets at a portfolio level and typically don’t even know the identity of the underlying client. DFMs now rely on platforms for performance reporting and to facilitate fees. This change has been incredibly complex and those UK platforms without agile, future-focused tech solutions are still racing to catch up – something platforms in SA need to learn from if they are to enable advice firms to meet the challenges of the RDR.”

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Justine Pattullo

Marketing Manager, EMEA

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