If there is one thing the financial world loves, it is the allure of a crystal ball – trying to forecast future market movements, client demands, and regulatory changes. Over the past decade, the UK wealth management industry has undergone a significant regulatory transformation, and while it has kept financial advisers on their toes, it has also had a profound effect on how the industry operates.

In this article, we briefly look ahead to gauge what lies ahead for financial advisers. South Africa has by and large drawn on the international lessons and best practices, while ensuring that the reform programme is suited to the local environment. The market size of the financial advisers in the UK industry is £7.1 billion (roughly R160 billion) in 2024. Studying the experience in the UK may provide valuable insights into the readiness of South African advisers and where they can benefit from making use of Discretionary Fund Managers (DFMs) services.

Regulatory rollercoaster

The decade following the Global Financial Crisis of 2008 can be characterised as the period of financial regulatory reform. New rules touch virtually every financial firm – from banks to insurers to asset managers. Importantly, these rules reshaped the regulatory environment governing a wide range of asset management products and activities. Let us break down some of the most significant regulations that reshaped the UK wealth management industry.

UK market reshaped

The regulatory changes over the past decade have clearly transformed and reshaped the UK’s wealth management industry in significant ways:

• Firstly, into a leaner and meaner industry. Stricter qualifications, transparency, and ethical standards edged out some advisers who were not able to maintain pace. However, for those who adapted, the profession is now more trusted, and client focused. The focus on better client outcomes produced a trend towards centralised propositions, which in turn, created breakaway firms. The industry has been subject to intense consolidation activity in recent years, with many larger companies acquiring smaller competitors. The Tilney Group and Smith & Williamson merged in September 2020, creating one of the largest financial adviser companies in the UK, Quilter PLC. Subsequently, concentration has ballooned.
• Secondly, shifting revenue models. With commission payments banned, firms have now shifted to a fee-based structure, helping build client trust by reducing conflicts of interest. This model has moved financial advice from sales to partnerships.
• Thirdly, client-centric, data-driven operations. Compliance has become data heavy. Advisers now rely on technology to track and report all transactions, fees, and risks to stay compliant and demonstrate value to clients.

What is next for SA

The implementation of ongoing reforms in South Africa, inspired by global regulatory trends such as those in the UK, can have even more repercussions for local financial advisers. A brief analysis of what the UK experience might still mean for local advisers going forward, follows.

The end of commission

South Africa could follow the UK’s RDR-style ban on commission payments. Although some advisers might initially feel the pinch, this change could create stronger trust with clients by eliminating perceived conflicts of interest.

More…more accountability

If South Africa enacts its own version of the SM&CR, it could mean more personal accountability for senior managers. Advisers and managers would need to shift from a compliance-only mindset to a culture of ethical responsibility.

Greater transparency and suitability

If South African regulations move toward even more fee transparency and suitability rules, advisers will need enhanced systems that clearly explain all fees, portfolio performance, and management of risk in a way clients can better understand.

ESG and Sustainable Investment Standards

With ESG a growing concern in South Africa, regulations may require advisers to be more rigorous about sustainable investment standards. Advisers who stay ahead of these requirements will have an edge with socially conscious clients.

Important role for DFMs

This is where the role of DFMs come in to assist financial advisers. Selecting a DFM that understands regulatory shifts and offers robust support will be invaluable. Partnering with a DFM could be a game-changer for advisers in a shifting regulatory landscape, in the following ways:

Suitability

DFMs can assist advisers in creating customised portfolios tailored to client risk profiles and objectives, including preferences such as ethical investing like ESG. DFMs have the experience and systems to assess suitability in line with regulatory standards, helping advisers reduce risk while maintaining compliance.

Operations

With increasing transparency requirements, advisers are tasked with regular, detailed reporting. DFMs can take on the burden of reporting duties, providing detailed performance and cost breakdowns that can be shared with clients. This allows advisers to focus more on client relationships than on administrative tasks.

Revenue models

With DFMs offering flexibility in charging structures, advisers can transition to fee-based models more easily – still offering clients value and expertise, even without relying on commissions.

Technology

As compliance becomes more complex, the right technology can save time and reduce stress. Many DFMs provide advanced platforms that streamline reporting and suitability assessments, making it easier to stay on top of regulations

Education

Increased qualification standards are likely. By staying ahead, advisers can differentiate themselves and be ready for regulatory changes. Many DFMs also offer training resources to help advisers navigate these shifts.

Final thoughts

While predicting the future of regulatory change may be tricky, the UK’s experience shows that adaptability and client-centric strategies pay off. Local advisers should prepare for more change and leaning on the expertise of DFMs can help navigate the regulatory challenges, while continuing to deliver excellent client service.

Embrace the shifts – partner with a DFM, and that crystal ball might just start looking a little clearer.