Ticking the box..down but not yet out

by Richard Rattue, managing director of Compli-Serve SA 

There are extensive regulatory changes ongoing in the industry; a veritable plethora of acronyms – FSR (Financial Sector Regulation Bill), CoFI (Conduct of Financial Institutions Bill), SAM (Solvency Assessment and Management Bill) – to name but a few.

I doubt many legal and compliance professionals took much in the way of leave over the festive season, as a deluge of regulatory paperwork was sent out for review, comment and digestion.

Retail Distribution Review (RDR)

Of course, one cannot forget the Retail Distribution Review (RDR), which is certainly causing the financial services industry to wake up and smell the winds of change.

I read that the end of the “tick box” approach is nigh and we are to apply “principles-based” methodologies instead. Now I will not attempt to regurgitate the difference between a principles- and tick-box-based approach, which has certainly been covered ad nauseam over the last year or so. Many articles on the subject predict the death of tick-box and anyone who bases their business on tick-box advice and/or compliance, or indeed treats compliance as a tick-box exercise, will find life somewhat difficult. Before we all charge off down the principles-based road however, let us pause for a moment and look at the potential impact of forthcoming RDR proposals.

In a nutshell, the costs of doing business are likely to increase and a number of existing advisors are either going to join large corporates or are likely to exit the industry altogether, as the regulatory burden increases and they struggle to re-tune their businesses towards a fee-based model.

The advice gap

There is of course always the matter of the so-called “advice gap”, which in effect arises as a result of individuals either being unwilling or unable to pay advisor fees and therefore being excluded from financial advice. This is likely to affect a significant portion of the population, who will potentially suffer as a result of a lack of access to advisory services. It is not for me to debate whether the “advice gap” will exist, or indeed solutions thereof; however, one matter that is likely to arise is the growth of non-advice based online tools. These are likely to be provided by larger organisations and entrepreneurial types as they attempt to capture the so-called "wealth-poor" market, which will likely fall outside the target demographic of most professional financial services firms.

We also have the next generation who are much more tech-savvy than their technophobic predecessors (which would include myself!). If surveys are to be believed, the so called “nextgens”, have wildly different savings preferences. This generation has grown up with technology and is likely to feel perfectly comfortable using technology to provide for their financial future, and it may not seem quite so important to do old-fashioned things like meet with a professional, when they can get all the information they need online. So, a potential future dichotomy exists where the provision of online advice/financial services naturally lends itself to a tick-box approach to both the advice process and the associated compliance requirements to ensure appropriateness of product, etc.

We may be able to argue that if the tick-box has a future role to play, it would be an “intelligent” tick-box that takes into account the wider principles enshrined in the forthcoming legislation, specifically around fair treatment of a client. I therefore see a future where we still have tick-box systems that have been developed to ensure adherence to the wider principles of fair play and decent market conduct.


Of course, all of this is looking into the future, as we are currently in a state of flux with final RDR proposals, and with the critical FAIS 2 and FAIS 3 remuneration discussions still to be had during the course of 2016. It is certainly going to be an interesting 12-18 months ahead for all of us, and I would advise to stay tuned on new developments.

Now is certainly not the time to attempt to be an ostrich.

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