Retail Distribution Review Patrick Bracher / Christine Rodrigues Director 29 January 2015

Retail Distribution Review Long, complicated document Most things already there. Advice, fees, disclosures are already dealt with in FAIS Act Said to entail a “more proactive and interventionist approach” to “dealing with market failures” Intends to ensure TCF outcomes but too many words The true broker and their client get lost You need more time to respond 2

3 This is a consultative democracy and all laws require prior consultation Wherever the RDR says “standards will be set” or “consultation is required” or makes general statements only, you are entitled to be consulted when specific laws are drafted Most of RDR needs further consultation about proposed new laws Consultation essential

How to respond Need to respond: Briefly Factually Reserve your rights to comment further when things are more specific Put the client into the picture Protect the broker against extinction Avoid need for thousands of new agreements 4

Subordinate laws must be rational All rules, regulations, directives of the FSB, etc: Must be rational Must be rational in relation to their purpose Must be clear Are subject to court review 5

Some broad issues Need to rationalise the relationships and the services (MIs, NMIs, Independent Brokers, Tied Brokers, Multi-tied Brokers, Binder holders, Financial (Risk) Planners, Outsource service providers, FSPs Representatives, Lead providers Where is the saving culture? No-one would argue with the Way Forward No competition does not lead to better service 6

The rule Better laws with clarity and brevity lead to better outcomes 7

8 Types of intermediaries – Independent insurance broker IFB FIRM IFB but can provide multi tied advice for certain non-investment products to clients Provides independent advice to client as a representative of firm perhaps for fewer products/suppliers

Types of intermediaries – Independent insurance broker 9 IFB FIRM Provides independent advice to client as a representative of firm

Types of intermediaries – Multi-tied insurance broker 10

Types of intermediaries – Tied insurance adviser 11

Independent insurance broker Not currently defined Remunerated solely by fees from customers No commission (Proposals L & N) 12

Multi-tied insurance broker Contracted to multiple product suppliers In our current law the “independent intermediary” Also remunerated by product supplier (Proposals P & X) 13

Tied insurance agent Employee / agent Influenced by product supplier Equivalence of reward to be reviewed – standards, employment issues? (Proposal R) 14

Financial planners Currently not defined in our legislation Not relevant to short-term industry unless risk planning introduced Would risk planning form part of this? (Proposal T) 15

Juristic representatives Major change FSP & juristic representative to have own KI (possible?) Not allowed to provide advice in capacity representative of a juristic representative. Individual must be IIB, multi-tied or tied in own right Product supplier can only provide advice on its own products Temporary arrangements to be allowed Standards must not create barriers to entry Will rent a licence to disappear (Proposals W & X) 16

Adviser firms Problems with Group Structures (Brokers) No individual IFA or multi-tied adviser may provide advice as a representative of more than one adviser firm (Proposal Y) 17

Forms of advice Financial planning (see definition page 13 RDR) Upfront advice – recommendation or proposal to client on suitability of product eg telephone call centre Ongoing product advice –Advice throughout life cycle of product Low advice –Cannot conduct full suitability analysis Wholesale advice –Employers, retirement funds, medical schemes – financial product advice demonstrate circumstances of end beneficiary taken into account Risk planning –What is this? –How different to ongoing product advice? 18

Sales execution in non-advice markets “Selling” products Factual information (Proposal D) 19

Ongoing product servicing After sales maintenance Product related communications Execution of product changes Collection of insurance premiums Collection of premium by qualifying intermediaries (Proposals E & F) 20

Product aggregation and comparison services Conduct standards from EIOPA Same criteria for comparison Clear what you comparing Not only on price (Proposal H) 21

Referrals and lead generation Not regulated if only contact details passed on Referral interface / dialogue with potential customer (Proposal I) 22

Outsourced services Directive 159 Not advice or sales execution Conflict of interest to be avoided Capped fee of R100 – policy issue (endorsement and renewals) (Proposals J, Z, AA and BBB) 23

Cancellation of policies (short-term) Consent at time Prior consent allowed (Proposal VV) 24

Ownership structures to be reviewed Should be allowed provided conflicts mitigated and disclosures (Proposal GG) 25

Fees Disclosure standards on fee (brief not add to costs, rational) (Proposal HH) Consent of customer – risk planning / financial planning fee (Proposal II) Standards for upfront and ongoing advice fees (Proposal JJ) Insurer to monitor advice fees for ongoing advice if facilitates collection (Proposal JJ) If customer instructs product supplier to deduct advice fees, fees must fall within standards (Proposal LL) Equivalence of reward (Proposal RR) Special remuneration for low income market (Proposal TT) Remuneration for selling and servicing short-term policies. Section 8(5) replaced with advice fee (Proposal UU) 26

Binder fees To be capped Reasonable Outcome of survey should be released Submissions what it costs them to perform functions (Proposal ZZ) 27

28 O, Q, S status disclosure by IIBs, Multi-tied, Tied What status? – must be brief Range of products – only if not authorised Range of suppliers – What if 20? Associates or group suppliers (tied only) Explanation of preference – Broker’s job to choose Disclosures

29 Insurer will have some responsibility for IIBs, Multi-tied, Tied BBTied: fully responsible: Why if independent? CCMulti-tied: –Responsible for conduct –Trained and competent: okay? –Fit and proper: Control measures only –Monitor fair treatment –Risk mitigation for high risk transactions –Resolve & monitor complaints: when escalated –Adherence to fees: Oversight only Monitoring by insurers

30 DDResponsible for aspects of IIBs conduct –If pay commission or fees –Ensure training: facilitate learning –Risk mitigation for high risk transactions –Monitor advice fees if paid –Monitor & resolve complaints – if escalated Monitoring by insurers

31 Await details of: –Product standards –Individuals fit & proper Ensure conduct standards are met: How? Customer Data – FF Insurers should have all necessary data: POPI Must be able to monitor TCF Insurers to give brokers required information unless good reasons: okay POPI – Confidentiality Brokers must protect their rights contractually Monitoring non-advice sales - EE