Can financial intermediaries really claim independence?
A while back we distributed an e-newsletter in which we discussed Sanlam’s Blue Star business model for financial advisers. We received a number of comments from readers who were concerned about the ongoing independence of professional advisers in the industry, claiming that product providers might use this business model to further their dominance in the financial services space. Are these concerns valid? The reality is many brokers already place 70% or more of their business with a single product provider. In addition – particularly in the long-term space – the South African financial services landscape is dominated by a handful of major institutions.
If we accept that many ‘independent’ brokers are effectively one-product shops then the only difference between them and (for example) a Blue Star affiliated financial intermediary is the ‘special’ relationship they have with the product provider. As one of our readers notes: “Independent brokers are often disrespected when they need special attention from a [product provider] to sort out a problem for a client.” This reader also believes that “tied agents are treated better because they have direct access to decision makers and internal staff!”
Do ‘tied’ agents get a better roll of the dice?
Are there any brokers who, after assessing their book of business, can genuinely claim independence? To answer this riddle we have to consider what the word ‘independence’ actually means. In the phrase “independent intermediary” we must accept the word ‘independent’ as an adjective meaning “not influenced or controlled by others in matters of opinion and conduct with the ability to think and act for oneself.”
Clearly a Sanlam Blue Star business cannot trumpet independence regardless of the percentage of competitors’ business they are permitted to sell. A reader in Roodepoort points out that the concept will result in “Sanlam specialists claiming to be independent.” A truly independent support structure for brokers should, in her view, have no link to a single product provider. But the further we probe the meaning of this word the more convinced we are that no financial intermediary can ever claim true independence. Are they “not influenced by the thought or action of others?” Are they “not dependent, depending on or contingent upon something else for existence and operation?”
A financial services provider that claims independence while placing 70% (or more) of its business with one provider is effectively a tied agent too. Under such conditions it makes little sense for the broker to refuse any special treatment the main provider offers. Again, we turn to one of our readers to clarify this position. “True independence is where a person has complete freedom of choice in a decision – which is not possible when you are required to submit a large percentage of new business to one product provider.”
Consumers suffer in an ‘independence’ vacuum
There are benefits to being a ‘tied’ agent. Unfortunately – efficient administration aside – these benefits accrue to the financial adviser and the product provider rather than the end consumer. An existing Blue Star business owner mentions security of succession planning and a respected brand backing the financial advice as examples of benefits to the agent. But his next comment would raise the hackles of a truly independent advice giver: “You don’t have to look much further than the product range they offer, and if needed there are other companies’ products.” In other words the Blue Star attitude would be that the clients’ needs can be accommodated without stepping out of the Sanlam product universe. Another reader confirms our independence fears with this gem: “My personal experience (after 19 years in the industry) is that there are a large number of brokers out there that call themselves ‘independent’ but only know one or two products well enough to give advice.”
We get the feeling independence is fast becoming the ‘holy grail’ of the financial services industry. Whether they operate in the short-term or long term insurance space, in pension funds administration, wealth management or healthcare the temptation is for financial intermediaries to slavishly follow the provider with the best ‘bag of tricks.’ We’d love your opinion on ‘independence’ in the financial services industry and invite you to take part in a quick online survey. Just click here and share your views on independence in the financial services industry.
Alternatively you can send your comments to gareth@fanews.co.za
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