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Advisers offer independence, integrity and trust

07 October 2024 Gareth Stokes

Independence, integrity and trust are the standout characteristics that South African retirement fund members expect from the financial advisers and planners that guide them along their often complex retirement savings journeys. This emerged during a three-way panel debate held on day one of the Allan Gray Retirement Benefits Conference 2024, themed ‘Through the Noise’ and held virtually recently. The topic of this discussion: ‘How do you define good advice?’

Clients and fund members first

“As advisers, we serve the best interest of the member,” said Anthony Govender, Founder of ASI Financial Services. “The fundamental currency that an adviser and a client trades by is trust.” He singled out the combination of independence, integrity and trust as non-negotiable in the ongoing adviser-client relationships. He argued that independence allows an adviser to offer his or her clients a range of options as opposed to the tied adviser reality of being linked to a single administrator, insurer or product house. PS, this was not an ‘independent versus tied’ debate; but the inherent conflict that arises out of the tied advice arrangement did come in for some criticism. 

“Advice needs to be in the best interest of members [and] any conflicts of interest can lead to members perhaps not being given the best advice, or being overcharged when it comes to fees,” said Lorraine Dias, Head: Retirement (SA) at Mercer Marsh Benefits. She added that unbiased advice was crucial. This view was expanded on by Lynne Kimble, Partner at Silvertree Risk and Wealth Management, who singled out independence as a cornerstone of financial advising in the retirement paradigm. “Independent, unbiased advice cultivates trust and confidence,” she said. Advisers can build trust and inspire confidence by putting members’ interests first. 

Independent versus tied: an inherent conflict

The panel was then challenged to take a deeper dive into the independent versus tied advice construct in the trust context. “As an independent advisor, I can look at a multiple of insurers or investment houses and present the client with a range of options based on price and value,” Govender said. These options are further assessed in light of what works best for the client and his or her family, based on an up-to-date financial needs analysis (FNA). Govender argued that the tied agent would probably go through a similar  FNA exercise, but was often constrained by only having access to a single administrator or insurer to choose from. 

Kimble conceded that the feeling of being “hemmed in” by a single solution set was among the key motivators when she left an insurer for independent practice, many years ago. The takeout here: An inherent conflict of interest seldom serves the client well. Business journalist and anchor, Nompumelelo Siziba, who deserves praise for expertly moderating the discussion, steered the participants towards the more benign topic of employee benefit advice trends. “There has been a significant move towards digitalisation and a lot of the service providers are now offering digital platforms [to] gives members easy access to benefit-related information,” Dias said, identifying technology as an important focus. 

On the plus side, technology improves transactional transparency; but there is a negative too, being the potential for disintermediation. According to Dias, new digital platforms reinforce the relationship between member and administrator or product provider rather than member and adviser. The panel also warned that the growing reliance on tech in employee benefits advice and retirement fund administration demanded greater focus on cyber security, from all sides. Govender glossed over the cyber risk to share his thoughts on tackling the disintermediation threat. 

Adviser-client relationships vested in trust

“The fundamental relationship that exists between the adviser, the customer and the product house is governed by trust; what advisers are faced with is a trend defined as supply encroachment,” he said. This phrasing intrigued your writer, who has not encountered it in the advising context. To summarise, the panellist explained the trend as the almost inevitable point at which a product provider bypassed the independent financial adviser (IFA) by sending a tied agent to interact with and propose solutions for the IFAs client.  “This breaks the trust between the IFA and the product house; but more so, undermines the relationship between the IFA and the client,” he said. 

Wow; tough words. It turns out Govender feels so strongly about this type of encroachment that his firm has raised the issue with the Competition Commission; the Financial Sector Conduct Authority; and the Financial Intermediaries Association of Southern Africa (FIA). The unanswered question: “Is this conduct permissible given that it undermines the fundamental relationship that exists between an adviser or broker and their client, and the insurance house”. Anecdotally, the panellist argued that the ratio between tied and independent advisers had shifted from one-in-five in the early 2000s to around three-in-five presently. 

One cannot debate the employee benefits and retirement landscapes without dipping into the topic of legislation. The moderator fired off some questions about the impact of regulation 28, and more recently the introduction of the two-pot retirement solution, on the advising discipline. Dias opined that the introduction of two-pots had made things more difficult for retirement fund members to understand, and that it would take time for the new regime to settle in. “Members will have three or three-and-a-half pots rather than two; and for some time, fund members will have to deal with different taxation regimes for their vested pot versus their savings pot,” she said. 

This pot is for emergencies only

Dias issued a strong plea to advisers and members to think carefully about accessing the balances in their savings pot. “It has not really sunk in that the one-third in the members’ savings pots is supposed to be their lump sum benefit on retirement … if members access their savings pot prior to retirement, they risk having no lump sum to fall back on,” Dias said. Early feedback from South Africa’s large insurers and retirement administrators suggests this plea has fallen on deaf ears, with Alexforbes reporting 78 000 withdrawal requests totalling R1.5 billion in the first seven days following the introduction of the new legislation. 

Kimble noted there was no requirement for adviser or employer intervention when a member made a two-pot withdrawal claim, meaning that advisers were not always able to intervene. “Over time, through the education process, we will be able to guide members on the importance of retirement savings; the intention of those monies was always for retirement and members should not be looking at the savings pot as anything other than an emergency fund,” Kimble said. 

PS, an English dictionary definition of emergency reads, “a serious, unexpected and often dangerous situation requiring immediate action,” which advisers might share with clients when debating raiding the savings pot to fund a holiday. 

The panellists were upbeat about the future of advising in the employee benefits and retirement funding worlds. “Employers have a greater understanding of the additional, holistic needs of members, and the space has changed  to accommodate that,” concluded Kimble. She pointed to the employee wellbeing and financial wellness programmes being integrated by administrators and funds to support this observation. Dias concluded that there was room for growth, and that it was imperative for more young people to enter the field. She said the industry was dynamic, and recommended it to anyone keen to create a long-term career. 

Regulate; but be mindful of overregulation

Finally, Govender urged IFAs and product providers to embrace regulatory change, with the caveat that care needed to be taken to avoid stifling growth. “The purpose that our industry has, the purpose that every product house has, is to serve,” he concluded. The true test for IFAs and planners is to serve with integrity, and to continue to build the trust capital between the advice profession and everyday South Africans. 

Writer’s thoughts:

The first panel discussion at the 2024 Allan Gray Retirement Benefits Conference did an excellent job of framing good advice in the employee benefits (EB) world. Is financial advising in the EB and retirement space different to the day-to-day financial planning that the typical IFA offers? And why? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.

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