FPI – selling on commission doesn’t foster professionalism

Good to hear these views; we clearly have a lot of hard work ahead. I wonder; the likes of 'Tim Jones'; 'Peter' and 'Advisor 1, are you FPI professionals or not? If they are then possibly they (& myself) should read our code of conduct and introspect a bit if we want this line of work to survive the future. Let's see what the FPI's proposals on remuneration are.
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A fee based industry will leave everyone underinsured. Take a life cover policy of R1000 pm. About R32.50 is commission. Is that too much? Ask that same consumer if he wants to pay R32.50 or if he wants to pay R500 per hour, including a needs analysis and time spent advising on other matters. He would have forked out a R1500. Now you ask me, if he wishes to move to a different company after 1 year because he is unhappy. Do you think he will pay R1500 again for advice? No the consumer won't, leaving the industry uncompetitive and switching fees much higher than before Let's say the first advisor who sold him the R1000 pm life cover was over insuring the client, do you think he will go and see his advisor to discuss it? No he won't. He will bypass it and go straight to head office to do the changes. What happens here: 1. The trust between advisors and consumers will break down 2. Rogue advisors take more time to advice, like some rogue attorneys do to drag out court cases to charge in favour of themselves 3. servicing of clients will become worse or even non-existent eg. A commission earning advisor will keep the client happy as a lapse in policy will mean a payback of commission 4. Many of my clients are being seen at night as the husband and wife works far apart and wants to discuss things together. This convenience will go out the door as "over-time" or "after hour" rates can now be charged for these appointments 5. Clients will make irrational decisions in order to cut down on costs not to see an advisor 6. Above average returns performed on investments by some advisors will be a thing of the past, as there is less incentive to perform so you attract more assets from a client I hope the commission model remains. However, mediocre advisors should leave the industry. Luckily more and more mediocre advisors are leaving the industry already, leaving more space for the true professionals
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Let the client choose, a hybrid of both is oft more affordable ,esp with the high RSA rising CPI too.Otherwise , the client might have to pay for billable hours / fees by credit card on budget @ exorbitant interest rates over a max of 5 years .
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The latest feedback by the FSB on its discussion document regarding this issue shows understanding of the complexity of the issue. For me, there are two crucial elements that need to be addressed: incentives to sell, rather than advise, by product houses, and the seperation of remuneration for advice from the service component. As long as an advisor is penalised by the current claw back clause, despite having complied with all legal requirements when providing advice, any changes to the current system will remain unacceptable to the intermediary.
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I wish the FSB / FPI would state what products they are referring to. Does this relate to investments and risk products (life assurance)? I dont know how they can create a fee structure to replace the current commission for life assurance? I would really like to see something concrete from them.
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Thanks for bringing up this highly contentious but interesting topic. Its all good and well to say that " planners must move away from selling products to selling financial advice" but we must always be reminded that a professional, as can be defined, "is a person who is engaged in a certain activity, or occupation, for gain or compensation as means of livelihood". It is therefore imperative for the following to occur before the Financial Planning industry defines itself as truly professional and able to charge fees (and more importantly have clients who are prepared to pay for their services): 1. Theory - Professionals have a knowledge set that is based on abstract principles, more so than operational procedures, and thus must pursue an extensive formal tertiary education.(all current professions require their professionals to have tertiary education). 2.Authority - Professionals have significant control over the nature and extent of the services that they render, because they serve clients who are generally unable to judge the quality of those services. 3.Community sanction - Professionals are subject to licensure or certification that delineates varying degrees of occupational jurisdiction in accordance with criteria over which they have considerable influence. 4. Ethical codes and professional tariffs - Professionals adhere to standards of behaviour that are explicit, systematic, binding, and public service oriented; prescribe colleague relations that are cooperative, equalitarian, and supportive; and with tariff structures that are enforced by their professional associations and legislated through eg. the FAIS Act. 5.The professional owes a higher duty of care to a client, often a privilege of confidentiality, where the professional is required to put the interest of the client ahead of his own interests. 6. FAIS legislation also must also define the professional nomenclature/title eg. the "Financial Planner" title should only be used by CFP's as is in keeping with the other professions ie. CA's. Attorneys etc. All of this ultimately defines a professional as an expert who is a master in a specific field and, as noted earlier, who has clients who are prepared to then pay the professional fees for services rendered.
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I would hope that the FPI remuneration team in terms of its probing into an appropriate fee model takes into account the fact that it is not only the time taken to evaluate and provide advice that requires simple remuneration but also engages the aspect of the implied risk flowing from the nature of any client association stemming from FAIS, FICA and of course the recent ombud rulings that have gone against financial advisors. Basically what I am seeing is that the mere fact of receiving a fee (percentage or amount irrelevant) makes the adviser potentially FULLY liable for all and any capital losses that flow from the engagement notwithstanding that the adviser may not have been in any way been criminally or negligently associated with the mechanism that occasioned the financial loss itself. Clearly it is easier for the Ombud (and client) to pursue the adviser than to sue those that actually stole or otherwise directly occasioned the loss. This is inequitable and iniquitous. So how then does one account for and evaluate that risk charge in your fee model? Secondly it must also be recognised that in terms of charging that the FSP must invariably deploy a veritable team of admin and compliance personnel in order to ensure that they do not fall foul of some new and interesting Board Notice utterance. The broad sweeping liability imposed on this profession by way of these changes taken together with the fact that the client is always inherently mobile and virtually free of any constraints and obligations vis a vis the adviser must also impact the nature of the fee discussion. For example there is no doubt that certain clients will play off advisers in order to say get a preferential fee scale offered to them only to switch allegiance or perhaps to wilfully fail to sign the envisaged annual fee renewals leaving one materially out of pocket with the only recourse being messy common law provisions. The FSB in this regard although funded by ourselves has not sought to advance the cause of the adviser preferring instead to align itself in direct opposition to its own interest group. To glibly assume that fees can be simply becharged as an alternative to some mechanism that ties the fee to the asset (thereby giving the adviser some sense of income security and continuity) cannot be overlooked. Further how are smaller clients, and by extension therefore the majority of the SA consumers, to be serviced equitably when they certainly will not be able to afford the compensatory fees needed to be charged by an adviser in order to maintain a sustainable and profitable practice?
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I Ihope that I can inflame this issue further. .Since when is the remuneration model a prerequisite for professionalism? I always held the belief that professionalism is measured by: Expert and specialised knowledge in ones field of operation Excellent manual and practical skills High quality of work High standard of professional ethics,high duty to clients,putting clients interests ahead of one's own, Reasonable work morale and motivation, Appropriate treatment of relationship with colleagues Being an expert who is master in a specific field. The arguments for this new reality all bears out the sad fact that ethics have gone out the door. Do intellegent people really think that changing the remuneration model will transform buffoons into angels? This debate has never been about treating custumers fairly it has always been about the FSB's conviction that commission is bad and constitutes a conflict of interest. Is a doctor who runs a cash practice more professional than one whose main source of oncome is the Medical Aids. If mr Brian von Flymen ,as president of the FIA has been correctly and within context quoted then a number of FIA members must seriousle reconsider their membership.
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Hi and behold, the integrity of intermediaries is doubted by their own colleges, or are they not? How can these two gentlemen make such an statement that products will be sold only for their commission value? If that is true, it simply proofs that the legislation, at the cost of the intermediaries, has totally failed their objective of creating a better and more trustworthy environment for clients and intermediaries. It would obvious be nice to bill people for work you do, and nothing is stopping you from doing that, it will just not be enough to cover your expenses and would mean that you have to get permission to work on a clients file, risking not getting paid for the work if you do not. Why are things so complicated? WHO IS ACTING ON BEHALF OF THE CLIENT IN THESE MATTERS? Certainly not those fighting for a fee to be as high as possible!! Do these clever people also speak to the man in the street, the one's using the services of the intermediaries, for their opinions, or do they just consult their own high profile clients? As Craig has said earlier, it would be nice to see something concrete from the learned in this matter, at the moment we just get a lot of uncalled for accusations My 2c
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Fact is that it is nearly impossible for the majority of financial advisors to simply switch to a fee remunerated structure from a commission based income. Very maybe possible over a very long period but doubtful. The cash flow implications by switching to a fee based practice is simply too difficult to overcome and especially with all the new regulations associated costs like PI cover, compliance officers, back up systems, voice monitoring, medical council fees, and other costs associated with running and operating a legal practice. This poses a question: Were all commission earned from clients by Insurance agents/brokers advisors through many years wrong and immoral..so to speak??.This poses a second question..is all commission earned by property agents, car salesman and other commission earners wrong or is this only applicable where finances are concerned?.Does a car or rather a house not probably be the biggest expenses that n normal person will go on during his life? Another scenario: Despite many direct insurers long and short- term the insurance companies are well aware that if the whole commission earning fraternity are to stop doing business tomorrow they will endure hardships beyond comprehension. If they offer "agents" a salary they will only attract personnel that is mediocre and sales will drop like rain. Most of the insurance companies have realized that a no commission scenario is on the wall and most of them have started very silently a direct channel to build up sales to absorb the shocks that will follow when commission are scrapped. They never talk about it it but they know. Where does this leave the commission earning financial advisor fraternity??. Some have said that insurance are sold and not just bought. To a certain degree this is correct and unfortunately we must accept the fact that some of the products on offer by fly by night suppliers of which many has gone now did not make the whole issue easier. Yes good insurance salesman have sold these products and also received very attractive remuneration in the process. In all fairness most of these products seem fine and above board. Most of these suppliers(now gone) were even registered at the FSB (Big Brother) and they the FSB did not seem to mind anybody selling their(closed/bankrupt supplier products?.Yes..pick on the broker-why did the FSB not did something worth the while and approve suppliers form the word go?. This would have stopped endless frustration and losses on all sides.!.Why does the FSB not rather approve or disapprove suppliers??. In principle fee based remuneration is of course the way to go. I have started the process +_ 5 months ago and it has not been without a lot of pain and sweat. One of the problems is collecting fees. Over the long term a fee earner will probably have to appoint a debtors clerks as well. Another obstacle is to convince a client that we the advisors actually supply a professional service not unlike that of accountants or attorneys. Other headaches is the actual rates or amounts to charge for all the different products and services on offer. Even more complicated is the fact that some insurers still does not offer a quote or product without commission. Yes..we commission earners are what they call the unavoidable necessary evil to most. We are the people that established the insurance industry ,the Insurance companies and made huge profits possible to shareholders and countless millions in taxes to the Government. Even if we oversold good products we are the people that caused many millions of people to have a future either through life products or savings. We all know that 90% of all people in South Africa are underinsured and does not save even close enough to what they should but still Big Brother and associates are of opinion that one day all of a sudden all these clients will out of own free will just waltz into our offices and beg to be insured. I believe that we should be regulated to a degree but what is happening to a very sound industry is nothing short of ludicracy by persons that have nothing to lose and in the name new buzzwords like "transparency" and TFC and other foreign invented concepts bulldozed us into a big void instead of turning to the Government which is daily in the news for misspending,frauding and squandering trillions every year..I ask why us if there are bigger fish to fry? We have been regulated ,much more than any other industry in SA. It seems to me that all the relevant organizations that control us the commission earners are only there as part of a job creation scenario and for no other reason at all. I beg anyone to explain to me why I must pay a cent to the Council of Medical aid schemes? I have never heard a word form there except when they want money. What do they do? Someone once said that if you have to start to appoint regulators to regulate the regulators the end is in sight!.Be strong all you commission earners, go and sell cars and houses and insurance through a fee based system. I salute you!
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I agree completely with Cynical Simon - in fact I think that his comments are very positive!The comparison with a "professional" estate agent is a good one: The more professional estate agents sell the more expensive properties thereby earning more commission then lesser experienced and less able colleagues. It should never be forgotten that we sell products, one way or another, and we should not be ashamed of it. These products can be simple or very sophisticated and those of us who advise correctly will tend to prosper and stay in the business - this is surely the same as someone advising and selling a complex computer system to an organization ?In fact many examples exist where everyday we rely on a professional salesperson/adviser who helps us with our choices. To advise pro bono work is ludicrous! At least to me - it presupposes that we make so much money in so little time that we can now do "missionary" work for the lower paid market. These are exactly the people who need more time in order to explain complex issues. It also presupposes that even the wealthy are quite prepared to pay for advice where previously they did not have to - I have had very mixed results on that one!
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What rubbish. This is another opportunity to slash fees for the sake of "professionalism", the model isn't broken, yet they're trying to fix it. A fee based system, will require clients to pay out of their own pocket, over and above what the client is already contributing to the product, this will create more paperwork, more stress for both client and advisor as they now have to negotiate fees, leaving an air of being uncomfortable. We have enough idiots tinkering with the system, that do no real good, except to justify their jobs. The system is fine the way it is and regardless of what you may think, we are professionals. What they're talking about is adding the burden of having to collect fees from clients, who are unwilling or haven't paid, we're going to become debt collectors. This is unacceptable in an industry where we require efficiency of time. These regulations waste financial advisors time, while regulators have an air of self-importance. Take the new legislation where investments in RA's require certain allocated proportions in different asset classes. What stupid legislation! It's a deterent to investing in an RA. The only benefit from that legislation was that retirement money ends up in government bonds, which will collapse under the weight of too much borrowing in the future. And just as people are being deterred from investing in RA's, people are being dettered from being a financial advisor, which will eventually cause fees to skyrocket as more advisors leave the business, because regulators are making it no longer worth while. If you want to fix the retirement problem, slashing fees is not the answer. The answer would be to get government to stop manipulating the inflation basket so that we get a true picture of inflation and that people save appropriate amounts. By government lying about inflation, by adjusting the basket, it will ensure that nobody is able to retire in 10 years because salaries, including savings would not have kept pace. And then what's governments answer going to be again? Slash advisor fees and people are investing too aggressively, put them into government bonds. Legislatures will turn this industry into a joke through over-legislation.
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