Impact of regulation on the shape of IFA distribution and strategic

opportunities pursued by Sanlam

Regulation will change significantly

Overview of RDR ImplicationsRDR Impact Adviser Implications Provider Implications

Market Structure

Higher threshold for independence

Minimum professional standards

Increased capital requirements

IFA exits? Consolidation Emergence of large advisory firms Advisers switch to tied Move upmarket to ‘independent’ Expand into manufacturing?

Need to secure market access in restricted landscape

Proposition

Adviser must agree charges with customers

Charges must be transparent

Product and Advice charges separated

Setting the advice charge tariff – level and structure

Clarify proposition and target market to justify charge

Advice: one off or on-going? Improve sales effectiveness

(productivity, unit costs) Invest in adviser support Individual adviser remuneration

Compete without reliance on commission

Flexibility in how advice is charged for

New business mix and

value

IFAs “unbiased and unrestricted”

Extend beyond packaged products

Opportunity for banks to adopt simplified advice

More sophisticated product selection processes

Increased take-up of non-packaged investment products

Understand more acutely cash flows within their business

Respond to threat of reduced margins

Tax and capital impacts

How RDR affects Product Design

RDR – the direct impacts:Remove commission biasTransparency and disclosureIncrease professionalism of advice

AND Indirect impacts:Capital and Value flowUse and role of PlatformsNew routes to market From Products to Propositions

CONSUMER AWARENESS & TRUST

RE-ENGINEER THE

MARKET

No advice Basic adviceAdvice under ICOBS

Simplified advice Restricted adviceIndependent advice

Regulatory position

Current today Current today – very limited

Requires revision to be economically viable

In market today for protection sales

Model considered but not yet confirmed

Industry expected to propose workable solution

Exist post RDR Exist post RDR

Customer experience

Customer requests purchase / is provided information only

Customer is provided basic recommendation (but not premiums)

Customer is provided recommendation

Customer given recommendation

Customer given recommendation from restricted providers

Customer given recommendation from whole of market

Adviser qualification

n/a Any ICOBs Which QCF level 2/3/4?

QCF level 4 QCF level 4

Customer charging/remuneration

Potentially moving to intermediation charge

Commission Commission Separate charge for advice

Will customers pay in this segment?

Separate charge for advice

Separate charge for advice

Potential channels to be used

Online Contact centre Branch

Online Contact centre Branch

Online Contact centre Branch

Online Contact centre Branch

Online Contact centre F2F

Online Contact centre F2F

Products Any Stakeholder Protection only Low risk investments/protection cover

Any, from restricted or tied panel

Any, true whole of market

Product design must be tailored to the channel & the advice model

Advice models and standards

Changing Business Models

Product to Proposition

Product approachFocus on acquisitionDistributor versus Customer needsOnly part of the value chain, focussed on product returnsNarrow definition Leads on features and benefitsProducts supplemented with commission and wider support to distributors

PropositionFocus on life cycle needsDistributor and Customer needsWhole value chain, how is the product generating its return and how is the distributor generating theirs?‘Marry’ the product with the adviceStay focused on needs

Focus on acquisition

What do IFAs want?

To deliver on promises to clients Cost efficiency Sustainability Building value

– Demonstrate assets under influence

– High proportion of reoccurring income

– Profitability

De-risking Guarantees Expertise Training Marketing Business support IT support

What will be the drivers moving forward?

Cost– Building the scale

Guarantees – At a sustainable cost– That are safe– Reduce risk not increase it – Post retirement market– With profits? Will the Pru win?

What will be the drivers moving forward?

Barriers to entry Transparency De-risking

– Building process with IFAs– Managing funds to risk categories – Sharing risk

NMG Survey “The lack of ‘cost leader’ in the UK Wealth market demonstrates the difficulty of achieving cost efficiency with complex legacy books”

What will be the drivers moving forward?

Value– Recognising the shift in the value chain– Proctor and Gamble to Tesco – Effect of regulation

Distribution – Different channels– Value of independence

Specialisation– Tax planning– Differentiation

How Sanlam are positioned to respond

De-risking– Building process with advisers– Managing funds to risk categories

Recognising the shift in the value chain

Joint venture discretionary fund management businesses

Investment partnerships

Product design

Specialisation

Technical

Tax

Business consultancy

Cost

Lack of legacy

New entrants

Niche

– Self select

– Section 32

Brand

Ambitions

Partner with up to 50 FA businesses in the post RDR world

10 joint ventures building to £500m per relationship

40 investment partnerships

Niche products – app on iphone

The winners will be…

…“Those that align closest to distribution”

Energising Together