Advisers vital in wake of credit crisis – Liberty

20 May 2009 Liberty Life

Fallout from the global credit crisis may appear challenging for players in the financial services industry but long-term ramifications could be extremely positive for the professional financial planner.

That’s the view of scenario planners at leading life insurer Liberty.

To substantiate the positive perspective, Liberty strategists point to likely trends in the retirement and employee benefits sector in the medium to large segment of the economy, specifically companies with a payroll of 200 to 4 000 staff.

“The international retirement industry is under pressure from plunging equity values,” says Kieran Godden, Divisional Director of Consulting and Actuarial at Liberty Corporate.

“We can expect regulation to be revisited in markets such as the USA and UK, leading in due course to more stringent company reporting and audit practices here in South Africa.

“Major corporates and the big audit firms have the resources to respond. Many medium and small companies do not. They will need assistance – with financial advisers ideally placed to help.”

A study by Watson Wyatt Worldwide shows that at the end of 2008 the value of assets in the 11 largest pension markets had fallen in a year by 19% to US$20,418 billion.

Global pension assets are now below their 2005 level. As a percentage of GDP they are back to 1996 levels. Now, more than ever, employers and retirement funds need the support of a professional adviser to achieve long- term wealth creation.

  1. “Internationally we also see deteriorating pension fund solvency levels and a broader view of risk with greater allowance for extreme events. In contrast, South African life offices remain well capitalised. For instance Liberty’s capital adequacy ratio (CAR) is above 2.5 as reported in the overview of trading published on 20 November 2008.

This is well above the industry requirement of 1.5,” says Godden.

“We predict that accounting and auditing standards will tighten up. Companies could face increasingly onerous requirements around disclosure and liability measurement.”

Godden adds: “SMEs may find it difficult to cope with greater regulatory rigour; yet the consequences of non-compliance could be severe – including heavy fines.”

A key intermediary skill – need identification – will become crucial, as will the ‘financial planner partner model’ that has been embraced by an industry leader like Liberty.

“In unfolding scenarios, we see huge scope for wider partnership between the professional financial planner and an insurer that lays on a full range of specialist services,” notes Godden.

Assistance would be needed in at least two instances:

  • When an SME finds its ‘neighbourhood actuary’ is unable to assist with proper risk and liability quantification tools
  • When the audit firm has sufficient on-board capacity but still requires independent verification from a well-resourced third party

“In these circumstances, a financial planner with a strong relationship with the SME could provide a solution by introducing a specialist pension and employee benefits partner with asset liability modelling capabilities,” says Godden.

“The 2008 credit crisis has changed our world. What has not changed is the value of early needs identification and the importance of facilitating appropriate solutions through strong relationships.

“The professional financial planner has always fulfilled this role. It’s going to be more vital than ever.”

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