RDR requires a outcomes-based approach

Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments

As such, local financial advisors need to migrate away from a purely investment management approach, and embrace more of a financial coaching role, in order to survive in a post-RDR world, says Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments.

“Picking funds based on historical performance or brand alone will no longer represent a rigorous enough process in solving for clients’ investment outcomes. Advisors will now need to demonstrate the delivery of suitable products and advice for each of their customers,” he says.

In addition to ensuring suitability to customer needs, other RDR objectives include greater transparency and enhanced standards of professionalism in financial advice. RDR aims to enable customers to understand and compare the nature, value and cost of advice and other services intermediaries provide, while building consumer confidence and trust.

Interestingly, Nixon notes that the shift in consumer needs is very much overlapping this legislative requirement and may have an even bigger impact on practitioners who are slow to adapt. “Customers are more educated and more aware of fees and are even exploring alternative distribution channels and advice models.

“The value of financial advice will therefore be defined by the depth of the relationship and support that an adviser will give to a client. This change in value proposition represents a significant paradigm shift and requires meaningful support from the industry players and learning the requisite skills to practice in this new environment," Nixon says.