Creating a level playing field for intermediaries and product providers
One thing that the Financial Services Board (FSB) cannot be accused of is acting with indifference when it comes to communicating its thoughts regarding regulation. At almost every single event in the industry, there is a representative from the FSB giving an update on future regulation such as the Retail Distribution Review (RDR) and Treating Customers Fairly (TCF).
There is actually not much more that the FSB can say on the matter that industry stakeholders have not heard before. But have we looked at TCF from the perspective of the intermediary?
It’s a hard knock life for us
Intermediaries are governed by the Financial Advisory and Intermediary Services (FAIS) Act which governs their actions and regulates the way in which advice is given to a client. While this act has been a welcome addition to the industry, Anton Swanepoel (CFP), a Director at AmityWealth, points out that some intermediaries have been taking a significant beating by the Act.
“Regulation has been very tough on the intermediary. When you look at the determinations handed down by the office of the FAIS Ombudsman, intermediaries have been held accountable at a far higher level than product suppliers. It is far easier today to blame the intermediary for something that has gone wrong and then have free access to the Ombud’s office. And from personal experience, where I have acted as legal counsel for some of these intermediaries, when the Ombud gets hold of an intermediary, the intermediary can expect trouble,” says Swanepoel adding that the Ombud acts as the investigating officer, the state prosecutor, judge and jury.
There is an insinuation here that the intermediary is possibly being treated unfairly by the Ombud all of the time. While there may be cases where this is true, some of the determinations handed down by the Ombud have pointed out that there are cases where the intermediary has refused to respond to any of the allegations that the client has accused them of.
Levelling the playing field
If this is true, then a serious imbalance exists within the industry, one that may be addressed by TCF. Swanepoel points out that TCF will be to product providers what FAIS has been to intermediaries.
“Is it unreasonable for one standard to be set in the industry where intermediaries and product suppliers are on the same level, where they will face the same level of accountability?” asks Swanepoel.
While the FSB has in the past been questioned for their commitment to listening to the intermediary, in this instance they are. Speaking at the Discovery Insure Financial Adviser Summit which was held on 17 June, FSB Deputy Executive Officer of FAIS, Caroline da Silva, pointed out that if you have the customer at the heart of your business, compliance to regulation is easy. Assuming that intermediaries are giving fair advice (advice that is not purely motivated by personal gain), then it is the quality of the products which will contribute towards poor advice. This is the responsibility of the product provider.
Intermediaries, whether they are tied agents or independent, are an extension of the company whose products they are selling. So when one refers to TCF, you need to look at the whole product line, from the product providers to the distribution model. If there is a level playing field, industry challenges are significantly decreased.
The secret to compliance
The secret with TCF is not to be strong-armed into compliance. Once that happens, enthusiasm levels immediately drop.
“If one is to effectively adhere to TCF, they should perhaps apply the principles defined by Steven Covey. If there is a higher level of trust between the intermediary and the client, transactions can be conducted in a quicker way because the client trusts that the intermediary is selling them the best product. Because of this, costs can be decreased,” says Swanepoel.
Decreasing costs in the industry has become the Holy Grail. Every product provider and intermediary, as well as industry regulators, have been looking for ways to decrease costs while increasing the satisfaction levels of clients.
Swanepoel points out that there are five satisfaction levels that clients experience within the insurance industry. Clients are either: dissatisfied, neutral/indifferent, satisfied, impressed or raving fans.
Another issue which has given many stakeholders in the industry sleepless nights has been RDR. Intermediaries are waiting with anticipation for the FSB to release its illusive white paper which will give an indication of their thoughts on the matter. The biggest area of concern within RDR is the remuneration model that the FSB will follow, especially when it comes to commission.
Commission is a sensitive issue. By the sounds of things, it looks like the only commission which is going to be banned is within the investment sector. All other commission will not be banned. However, this will once again only be confirmed by the white paper.
“TCF can actually go a long way in making RDR a non-event. If an intermediary builds up a high level of trust with a client, that client will be more than willing to pay commission for advice. We need to turn clients into raving fans,” says Swanepoel.
The intermediary is still key
While the FSB can be accused of bringing a tsunami of regulation to the industry, one must look at the value that it is has brought to the industry. Before the introduction of the FAIS Act there were a number of people operating in the industry that were not particularly qualified to do so. This has brought a significant level of mistrust in the industry where insurance is seen as a grudge purchase and intermediaries have one of the hardest jobs in the world when it comes to building trust with a client. Da Silva points out that regulation has transformed the insurance industry into an industry of professionals. This will continue to be the case as the FAIS Ombud is coming down hard on people who do not have the necessary qualifications.
The biggest question with TCF is the punitive measures that are imposed on non-compliant companies/individuals. Norton Rose Fulbright Director, Christine Rodrigues points out that while TCF is only going to be passed into law with the establishment of the Twin Peaks model, there is currently enough legal backing for the FSB to prosecute errant companies/individuals. Punitive measures include intensive and intrusive investigation methods in order to apply proper TCF objectives. The naming and shaming of companies/individuals will also be employed as well as the handing out of financial penalties.
Editor’s Thoughts:
The sole aim of the FSB is to improve the industry and to improve the role of the intermediary in the industry. Do you see it in the same way? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
As we do not have any say or choice in any legislation we will/must accept like sheep.
Compensation is where the crux of the problem lie. If all commission on investments are banned there will be without any doubt be a sharp rise in the sale of the few product left where there are still some sort of commission left(Again objective honest advise will suffer in the name of survival).We are expected to do more, pay more ,earn less and have happy fluffy customers grinning from ear to ear. It is so absolutely ironic that investments that are probably the riskiest insurance product that clients can buy will most likely now be treated with the least respect and attention as it is risky for the advisor and now without decent compensation just not worth the while. So what kind of advise can prospective investors expect to receive in a couple of years?. Those advisors that choose to do investments will probably have to do so with a sort of agreed fee compensation model. Fact is that they will have to do many ,many of these investments to cover office costs and make a profit and the question is..will it still be good advice? For a new FIA it will be nearly impossible to enter this market. More than likely there will be even more tied salaried salesman sitting in a specific product supplier company's office to assist clients doing investments without having much of a choice as to where they should invest.
I have gone the route whereby I have to a large extent scrapped all commission on most products investments and life products and replaced that with a agreed monthly fee. Luckily my position is of such a nature that I can but without any other income to supplement/subsidize it is simply impossible. After close to 2 years I still do not break even. Now:
Will it be fair to start to advertise on a large scale that I will do investments/any life insurance for only a small fee per month(NO COMMISSION)? This is exactly what I should do to get to a turnover that will supply me with a livable income. The further consequences of this over time will be that all FIA"S following this route (the only route) will begin with a extensive price war where those with the biggest practices will be in a position to demolish all the small ones. Congratulations legislators..you have won!.
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- Intermediaries and Product Providers are no longer in charge of the client experience, the client is, and TCF will strengthen this position. We should therefor adapt our interaction and offerings to clients to allow clients to create their own, preferred experience. This way clients will experience a greater level of trust and will indeed become the raving fans that Anton refers to.
- When an Intermediary propose a particular product as solution to a client's needs, he/she "acts as the face/PR/representative" of that company and in this instance is responsible for assisting the client to enjoy the experience of interacting with that Product Provider.
- If the above is true, then Intermediaries and Product Providers will in future have to work a lot closer. Maybe have fewer but closer strategic alliances.
These are but a limited few ideas and starting points to move towards a more desired postion. Report Abuse