How would you tackle the financial advice challenge?

For South Africa’s advice community to have any chance of addressing the country’s poor financial inclusion stats, they will have to scale the twin peaks of advice affordability and product suitability. This truth was exposed during a forthright discussion between the Financial Planning Institute of Southern Africa (FPI) and financial journalists in preparation for the institute’s 2021 Financial Planning Week (FPW). This year’s initiative will play out under the theme: “Live your today and plan your tomorrow” and will include a series of live FPI webinars, one per day from 4-8 October.

Ingraining good money habits

David Kop, CFP® and Executive Director: Relevance at the FPI, said there was a need for financial education to raise awareness about working with money, especially among the growing cohort of entrepreneurs in the so-called township economy. “If the advice community can help these entrepreneurs to manage their money, that will be a big win for us,” he said. 

An observation made during the media discussion was that South Africa could significantly improve financial outcomes if the knowledge and skills required in financial decision making were imparted at an earlier age. “We are treating the symptoms without addressing the cause; if we want to see a shift in financial outcomes, then we need to start educating our children about money from a younger age,” said Jean Archary, CFP® and founder of Financial Wellness Coach. Archary authored a series of stories to educate children about money after struggling to talk to her daughter on the topic, despite working in the industry. Kop quipped that he had taught his children about tax by demanding the first bite of every ice cream… 

A basic understanding of finance and money is useful; but the growing complexity of the financial service landscape make professional financial advice indispensable. “Even seasoned financial planners have to ‘dig deep’ to make sense of the financial products in a new client’s portfolio; if we struggle, then just imagine how the layperson struggles,” commented Hester van der Merwe CFP® and financial planner at Ultima Financial Planners. She added that a technical understanding of each product was the tip of the iceberg insofar the financial planner’s knowledge. In addition to understanding the regulatory environment, financial advisers and planners must be cognisant of clients’ financial behaviours and their emotional responses to money. 

The advice cost and product suitability mismatch

Upon opening the discussion to the floor, journalists quizzed the FPI about the frequent poor advice outcomes that get splashed across local media platforms. We also asked how the financial advice community could make inroads into financial inclusion and financial advice to low-income households against the twin peaks of the high cost of financial advice and the glaring inefficiencies in many low cost insurance and investment products. Financial journalist, Maya Fisher-French opined that many of the risk products designed for families earning less than R15000 per month “should not exist in a treating customers fairly environment”. And this writer agreed! 

FAnews asked how the industry could realistically expect financial advisers to tackle the low income advice gap given the need to generate fees for advice. We also questioned a provider environment that was built on selling the most expensive cost-to-coverage risk products to the poor. “If I could have one wish it would be for a simple investment product that everyone could understand,” said Van der Merwe. As for the cost of advice, she observed that it was enriching to assist low income earners with their financial planning needs; but impossible for financial planning practices to carry out this process at scale. 

The FPI acknowledged that there were plenty of issues in the financial planning landscape. “The focus on product is a problem, we need to shift our focus from the product to advice and the value of advice,” concluded Kop, who agreed that pro bono financial advice would not solve the advice need in the low income segment. “We need a solution that is great for the consumer … the work that the financial press does in highlighting scams is great; but we also need to highlight what is good and great about this industry and profession”. The FPI’s ongoing FPW financial education programme lives up to this ‘good and great’ rallying cry, and warrants a closer look. 

Doing their part in further financial education

The FPI runs various online initiatives to guide consumers on their financial planning journeys. These include a financial education resource FPIMyMoney123 and a website that helps consumers to find a financial planner to guide them along the way, letsplan.co.za. These online properties allow consumers to first educate themselves about their financial needs before searching for and matching with an adviser with the necessary qualifications. “Financial education is not something that happens once-off, it is a continuous process that works best when it coincides with a financial decision point,” said Kop. We thought it opportune to share the five pillars that underpin the 2021 FPW education programme. 

• Pillar 1: Busting financial planning myths. Consumers have misconceptions about what financial planning entails, how much it costs and what it can achieve… The FPI will share real-life examples to show that financial planning is not only for the wealthy; that you are never too young or too old to see a financial planner; and that executing a financial plan is an ongoing process involving both client and planner. 

• Pillar 2: Children and money. “The earlier you start to build a healthy relationship with money, the better,” writes the FPI. And although financial planners do not typically work with kids, they can coach clients on how to foster a savings culture in their children. Helping children to manage pocket money and set and achieve realistic financial goals may sound simple, but there is no substitute for tried-and-tested advice as a starting point. 

• Pillar 3: Creating financial resilience. According to the FPI, successful financial planning is about creating strategies that will allow consumers and their families to thrive in good times and bad. During this year’s FPW, panellists will reflect on their experiences of coaching clients through the economic uncertainty of the past 18-months to demonstrate the importance of improving consumers’ financial literacy, of creating a financial plan and building a financial buffer. 

• Pillar 4: Goals and lifestyle. Successful financial planning is about more than keeping household balance sheets in the black. Every consumer has dreams, goals and aspirations, and this should be reflected in a lifestyle financial plan that sets out SMART (specific, measurable, achievable, realistic and time-bound) financial goals. 

• Pillar 5: Managing risk in your life. The FPI will use this discussion to inform consumers about the risks they can manage by maintaining an emergency fund, and which risks need to be covered by insurance. “It is important for consumers to work closely with a financial planner to establish which products they need to achieve their goals,” writes the FPI. 

We look forward to reporting on some of these sessions, and encourage you to keep your eyes peeled for more details on the live webinars and pro bono financial planning opportunities set to take place from 4-8 October. 

Writer’s thoughts:
National Treasury has long complained about poor financial inclusion statistics; but no matter the intervention, the problem remains. Our view is that socioeconomic factors such as high unemployment and social grant dependency are structural issues that cannot be solved by the financial services sector alone. But we can make progress in other areas. How should the financial advice community tackle the twin peaks challenge of costly financial advice and unsuitable financial product? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected]

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