Regulation is guiding us
FAnews recently attended the 2015 Financial Planning Institutes (FPI) annual conference where the main theme of the conference was the changing world of the financial planner and how planners can embrace these changes.
It is no secret that the main driver of this change over the past few years has been the industry’s regulatory landscape. In fact, a staple at any conference in the financial services industry is an update on the regulatory environment in the industry. While we were expecting the stock standard explanation on the reason for change in the industry, we were surprised by some new pearls of wisdom.
The situation in the industry
The Financial Services Board (FSB) has been very open and honest about its view on the industry and why it thinks there needs to be regulatory change.
However, there has been one voice which has been somewhat silent on this. That is the voice of National Treasury. Katherine Gibson, Director of Financial Markets and Competitiveness at National Treasury, gave some of the view points from the highest financial authority in the country.
“We have a highly complicated financial sector which offers complex products to clients. It becomes hard to regulate this sector, but we need to put the public’s best interest at heart,” said Gibson who added that Treasury is not going to just sit back and let the world improve.
While companies and financial planners feel like they are coming under attack, Gibson was very quick to allay fears that the whole industry is still full of bad apples. She admits that there are a lot of companies and financial planners who are operating ethically in the industry. However, she does admit that there is a bit of a rot that needs to be sorted out.
“For every good company in the industry there are many more companies taking fat chances. For those who are doing right in the industry, regulation is a burden. But for those who are doing wrong in the industry, action is not being carried out swift enough,” said Gibson who added that too often, the wrong product is going to the wrong person at the wrong time.
Where to now?
As financial planners, you might be aware of the people who are doing wrong in the industry and you might know about the practices they are engaging in. But when there is no action taken against these people, we often ask where the long arm of the law is.
David Kop, Head of Advocacy and Consumer Affairs at the FPI, says that while we think that regulators don’t act, they can only act within a specific framework. And this framework may be restrictive.
But this will change in the future. Gibson warns that Treasury is gaining momentum and is assisting the FSB in implementing key pieces of legislation. How will this impact be seen in the future? Gibson pointed out that “In future, if it looks like a financial services product and smells like a financial services product, it will be regarded as a financial services product and will be regulated as such. Our mindset is quite simple. The client merely needs to know who is doing what in the product cycle and who can be held accountable when something goes wrong,” said Gibson.
TCF and RDR DNA
Treating Customers Fairly (TCF) will be one of the key pieces of legislation the FSB will use when it is regulating the industry. The six outcomes are well known in the industry, and the FSB is already expecting practitioners in the industry to adhere to them.
While this may seem like a burden, Kop points out that it should be in every financial planner’s DNA. “If we are open and honest with clients, they will know what we expect from them in terms of fairness and fees. We are not in the industry as charity cases. We need to make a living,” said Kop. This also speaks to the Retail Distribution Review (RDR) which will be one of the other key pieces of legislation that the FSB will use when it is regulating the industry.
We are not the only industry in the world going through regulatory change. Soon after the global financial crisis, the UK formulated and implemented its own form of TCF and RDR. However, it was largely believed to be a failure and representatives in the local market are rightly asking how it would work in South Africa if it could not work in the UK.
But Phil Billingham, a Certified Financial Planner from the UK, said that a lot of the reports about the failure of regulation in the UK are exaggerated.
“Yes, there was a fall in number of financial advisers in the UK. But not by the standards that media is reporting. I have read some reports that suggest a fall of up to 50%, this is grossly incorrect and a more accurate figure is 25%. Added to this, many of these planners are now wanting to come back into the market. At the end of the day, RDR did consumers a favour by breaking the back of a model that was already broken,” said Billingham. This may suggest that TCF and RDR may not have been a complete failure in the UK.
Editor’s Thoughts:
Kop feels that the industry must embrace the change. “As a profession we have a unique opportunity to shape the industry. Regulation is not being forced on us, it is guiding us,” said Kop. However, there is still some stern resistance to change. How do you feel about the comments of National Treasury and their validation for regulatory change? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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