Economic viability of financial planning practices
The financial services industry landscape in South Africa is changing rapidly and in order to survive this change the industry needs to adapt accordingly.
Meaningful interventions and models of assistance are required in the financial planning space if the industry, so critical to the future success of a savings culture, is to survive and flourish in years to come.
FAnews chatted to Jaco Coetzee, General Manager of Sanlam Financial Advisers, and Johan Minnie, National Support Manager at Sanlam, who believe a significant part of the solution lies in the industry’s ability to ensure the economic viability of financial planning.
Coetzee and Minnie fit in well with this topic as Sanlam has also developed a practice management program which teaches financial planners to transform.
Potential risk factors
According to Coetzee, there are multiple risk factors that are associated with the financial services industry. The first is that financial planners have to attract enough new business from existing and current clients to meet cash flow requirements. Secondly, they have to ensure that they have the right ownership composition to remain competitive.
Other factors include the loss of key staff members or high staff turnover, the risk of security breaches to data and intellectual property, increased competition, failure to comply with legislation, regulation and/or standards and the high cost of complying with legal requirements.
Coetzee said, to a large extent the survival of an adviser is dependent on his or her ability to earn commission. It is for this very reason that entry into the market is a challenge as it may be far easier to take employment elsewhere where the adviser can earn a fixed salary. Proposed regulatory changes might even increase this challenge as it may take longer to build a sustainable business in the near future.
“Historically, financial advisers acted as individuals who did not build financial services businesses but who rather depended on product providers to look after sustainability and also client centricity. Transformation was a huge challenge in the industry, because originally a practice was built on the relationships that were formed with clients over a long-term and in a specific market,” he said.
“During the last decade, business was increasingly done via entities (still by intermediaries) that now offer financial service centres rather than individual advice and this simplifies transformation. It also creates the opportunity to expand services to different market segments. These entities offer different resources and support businesses, and therefore allow for change and opportunities for transformation,” continued Coetzee.
Minnie said that appropriate interventions and models definitely give financial planners a competitive edge in this industry. “The financial services industry has become highly regulated over the last couple of years, making running a business a difficult task. It is important that financial planners build sustainable businesses within the regulatory framework in order for clients and financial planners to benefit,” said Minnie.
Fully fledged professionals
In order to empower and assist financial advisers Coetzee believes good practice management programmes are essential. Human resources, marketing to new and existing clients, financial management, operational management, strategic business planning and marketing with centres of influence will enable financial planners to transform from being advisers to becoming fully fledged professional advice practices.
It is critical to point out that the purpose of these programmes is to maintain sustainability in the industry and contribute to economic growth and job creation. “By doing so, support is offered to financial planners to vest sustainable financial planning practices, help them to grow their practices and in so doing protect current jobs and create new jobs through their practices,” said Coetzee.
He mentioned that practice management training to financial planners will empower their businesses with practical practice management toolkits, skills and knowledge to build the distribution capability.
Embracing legislative changes
Treating Customers Fairly (TCF) must also be adopted as part of the culture of the business. “I believe that where advisers survive long enough to build a proper business, the natural outcome is that they drive values on behalf of their clients. Intermediaries need to build businesses with long-term visions based on their relationships with core clients. Relationship and trust will ensure TCF. Such businesses are models that ensure client centricity, succession and a focus on providing holistic financial advice and services that cover the total spectrum of advice. We need to ensure that we follow stringent processes and embrace the legislative environment with the best levels of training,” continued Coetzee.
Coetzee believes that timeous meaningful interventions from the industry and the government will determine the future of the financial services industry. Any intervention will only be sensible if backed by proper consultation processes. Any interventions should ensure that we create solutions which warrant that those who provide financial advice to the client have a chance to create a sustainable business over the longer term. This will, in turn also ensure compliance with TCF and the outcomes envisaged by the Financial Advisory and Intermediary Services (FAIS) Act.
“We wanted to empower talented financial advisers to own and run their own business, and thus stay in the industry,” says Coetzee. “This of course contributes not only to industry sustainability, but also to economic growth and job creation.We need to assist and empower advisers to not only survive, but flourish. Their practices need to be viable and stable to enable them to provide services of the highest quality to all market sectors in South Africa over the long-term,” concluded Coetzee.
Editor’s Thoughts:
Coetzee believes that the ability to transform and adapt to changes as quickly as possible, does create a competitive advantage. In doing so, financial planners can stay one step ahead of the game. Do you agree with this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
