Finding joy in regulation

Since the introduction of the Twin Peaks model of regulation, which is currently waiting to be promulgated, the industry is finally coming to terms with regulatory reform. One of the biggest steps in this process is asking how regulation will affect their business.

Of particular concern is the Retail Distribution Review (RDR) and the way in which the Financial Services Conduct Authority (FSCA) – the regulatory body that the Financial Services Board (FSB) will eventually transform into – will implement regulation in the industry.

An industry of professionals

It is no secret that the whole aim of regulatory reform has been to further ensconce the professionalism that is already inherent within the industry. This message was reiterated by Billy Seyffert, COO of Moonstone Compliance, at a recently held Moonstone Regulatory Update Workshop.

“There is no doubt that the industry will be completely different in a few years’ time. Currently, we exist in a fully rules based environment; we are now moving towards an outcomes based approach of regulation, and anybody who has a child writing outcomes based examinations will know the teething problems that can arise,” said Seyffert.

He added that as professionals, we must do our best to embrace regulatory reform and stop listening to the industry rumour mill which at the best of times is filled with negative messages. “There is a lot of fear in the independent intermediary space that RDR will be the death of independent advice. This is untrue. The whole purpose of RDR is to provide clients with the best independent advice possible to suit their needs,” said Seyffert. It does become hard to see why the FSB would say one thing and then be counterintuitive in its actions.

Where are we now?

Many of us are already fully aware of the current RDR proposals which Seyffert added will be close to what will actually be implemented by the FSB/FSCA.

One of the major issues at the beginning of the RDR process was the classification of advisers. The FSB initially had a three pillar approach with advisers falling into a specific category depending on the type of advice offered. This was frowned down upon by the industry because there were just too many areas which were open to interpretation.

What we will see now is an approach that the FSB hopes will establish the level of independence that an adviser has and the levels of conflict of interest that exists. “Advisers will now either be known as Product Supplier Agent (PSA) or a Registered Financial Adviser (RFA). It is an either or situation, and even representatives that sell a specific product will only be allowed to sell a product from a specific insurer. Gone are the days of multi representatives,” said Seyffert.

There is an exception, if an adviser sells life products from one company, but that company does not have a short term product that will cater for a client’s need, then the adviser will be allowed to sell that product. The same applies for the reverse situation.

The binder situation

There has also been a lot of confusion in the industry ever since the FSB announced its revised outlooks on binder holder agreements.

Seyffert pointed out that non-mandated intermediary (NMI) binder holders who are licenced to provide advice or who are associated with a financial services provider who is licenced to provide advice, are still going to be subjected to fee caps. “Those not licenced to give advice will not be subjected to fee caps. Further, NMI binder holders licenced to provide advice will not be limited to which binder functions they can perform. They can perform all five; those being entering into, varying or renewing contacts, determining wording, determining premiums, determining benefits, and settling claims,” said Seyffert.

However, it must be reiterated that binder agreements may only be entered into if it is in the best interest of the insurer and absolutely necessary.

Editor’s Thoughts:
At the end of the day, working towards better outcomes for customers is a noble intention. However, it needs to be asked whether advisers and brokers were not doing this in the past? and if they weren’t, why were they in the industry in the first place? The days of making a fast buck in the financial services sector have long faded into the sunset, even without regulatory reform. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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