On 17 September 2016 Netwerk24.com – part of the Naspers group – published an article by Andró Griessel, a financial adviser, under the title “Are you financing your broker’s overseas trip?” (The article was published in Afrikaans under the title “Finansier jy dalk jou makelaar se oorsese reis?”)
Although the article claims to offer ‘independent advice for consumers in selecting a financial adviser’ it is clearly written to promote the author’s preferred financial advice model. In so doing the author casts unwarranted aspersions on many stakeholders in the broader financial advice sector.
The Financial Intermediaries Association of Southern Africa (FIA) takes exception both to the tone of the article and to certain of the assertions made in it. In addition, we urge editors and publishers of websites aimed at financial consumers to either provide balanced and independent reporting on the topics covered or to clearly state that the articles represent the views of the author. It may be necessary to include additional comment on how the author’s views may be influenced by his or her business interests.
Griessel’s article is laced with inaccuracies and misdirection – beginning with its title. “We don’t know whether the headline was the creation of the writer or the editor; but it is alarmist, dramatized and factually wrong,” says Gavin Came, chairperson of the FIA’s Financial Planning Executive Committee. “The poor conduct alluded to in the headline is strictly regulated by way of conflict of interest regulations as part of the Financial Advisory & Intermediary Services (FAIS) Act – which Act requires that any conflict be disclosed by the adviser during initial meetings with the consumer”.
It is worth noting that overseas trips or other productivity rewards are not funded by the consumer, but by the shareholders of the product provider in question or by a revenue sacrifice by the adviser. In recent years margins in the industry have been so squeezed that very few if any broker firms and product suppliers are able to fund overseas trips.
To suggest that only one in six financial advisers is competent, with four being ‘poor’ and one being a borderline criminal is a gross generalisation, absolutely untrue, and cannot be allowed to stand. It is unnecessary and indeed unprofessional to ‘tar and feather’ an entire industry in this manner. “Just because an adviser chooses a different route or methodology to achieve an acceptable financial outcome for their client does not make them bad advisers,” says Came.
The mix of commissions and fees earned by an adviser is not a measure of his or her professionalism, nor does the adviser have any control over the structure of the commission landscape. For example, the level of upfront commission payable on life insurance products has been regulated through parliamentary statutes since 1977. “A broker cannot earn more commission on a life insurance product than the maximum set out in law and upfront commission remains a legal and acceptable component of adviser remuneration models,” says Came.
Upfront commission is only paid on pure life insurance products and on regular-pay investment products. In the case of the pure life policies the client can negotiate commissions on the basis of premiums paid versus cover purchased. In the case of recurring premium investment products, industry statistics indicate that the average monthly premium is about R500 per month with the average ‘life-of-product’ commission capped at around R1500 including VAT. This hardly fits the “fast money” description used by the writer.
“The R1500 upfront commission provides an alternative advice-charging model that enables millions of clients to benefit from professional advice that they may otherwise not have been able to afford,” says Came. “It will certainly be less than what a fee-based advice practice would charge for giving advice”. He added that good advisers would be guided by their clients’ unique situation and that products should match their needs.
It is disingenuous, as Griessel does, to suggest that a salaried adviser offers the best advice. An adviser earns his or her income from giving advice and in such regard is entitled to earn salaries and incentives, like any other working person. “In the world of business people who work harder need to be rewarded better than those who are just in it for the ride – this does not make the top performer dishonest,” says Came. A counter to Griessel’s argument would be that all financial advice practices should run as not-for-profit companies, because failing to do so would make them guilty of giving bad advice!
Griessel’s blurring of the lines between qualification and experience should also be questioned. The industry has improved significantly over the past decade and all registered financial advisers are required to sit regulatory examinations before ‘selling’ financial product. The fact that the CFP ® qualification is highly respected among advice professionals should not distract from the quality of advice given by the thousands of registered representatives who operate in South Africa today. The combination of experience and RE puts many advisers on par with the less experienced but academically-qualified CFP ®.
The number one requirement when choosing an adviser is to make sure that he or she belongs to professionally run trade association or standards accreditation body such as the FIA and FPi. These associations have a code of conduct to ‘police’ their members’ conduct and have disciplinary processes should any contraventions occur. This, in addition with the requirement that the adviser be licensed with the FSB, should give the consumer the necessary peace of mind that they are dealing with a person that is capable to assist them with their financial needs.