Giving financial advice in an uncertain world
It’s extremely difficult to meet your clients’ expectations during periods of economic turmoil. As financial advisers come to terms with post-recession returns the real work centres on managing client expectations. They need to know that the 15%-plus real returns from equities and the reasonable yield on cash investments are a thing of the past. A professional financial advisers’ job is never done. In the struggle to find appropriate solutions for clients’ risk and investment needs, the professional financial adviser has less time to engage with the regulators who are carving out the industry landscape. And that’s why broker organisations prove invaluable.
On 2 September 2010 Masthead hosted a professional development day at the Indaba Hotel in Fourways, Johannesburg. Some 250 financial advisers attended to find out more about the ever-changing regulatory environment and ways to improve the performance of their businesses under such conditions. FAnews Online sat attentively through each of the five presentations, and will bring you the even hi-lights over the next couple of weeks. In today’s article we’ll share some of Masthead’s engagements with the Financial Services Board (FSB) – as presented by the organisations general manager, Ian Middleton.
The “big news” in 2010
Treating Customers Fairly (TCF) is just one of many high impact changes proposed for the financial services industry this year. “TCF is an integral part of this industry and the broader financial services industry going forward over the next few years,” said Middleton. Masthead has been extremely busy since the FSB introduced the concept early in 2010. The organisation has offered its inputs, suggestions and commentary to ensure intermediary views and concerns are included in the final version of TCF. The regulators need to understand many of the TCF concepts are already enshrined in the Financial Advisory and Intermediary Services Act of 2002 – with the result the code should focus on bringing product providers in line.
Another major regulatory change centres on the Conflict of Interest (COI) legislation. The legislation, introduced 19 April 2010, required financial services providers to implement certain changes by 19 July of the same year. Middleton says the additional changes imposed on product providers from 19 October 2010 will fundamentally change the environment. But the debate is far from over!
“Implementing COI is like water finding its own level – there are a lot of uncertainties about what’s ok and what’s not ok – the law is very clear on the words – but the practical interpretation, application and implementation could differ widely from one provider to the next,” notes Middleton. The organisation will continue to monitor developments in the COI space, engage with regulators on these developments, and keep its member brokers informed.
An ongoing battle with administration
In recent months FAnews has received numerous complaints from brokers who are disgruntled with the levels of administrative service received from the FSB. Although Middleton never touched on these issues he had some strong words for the recent inflation-plus increase in annual licensing fees. There are fundamentals we don’t agree with, he said, before adding: “To implement price increases that are multiples of inflation (as opposed to around the inflation mark) sets the alarm bells ringing – we’re worried about what’s going to happen going forward.”
The good news for embattled brokers is the FSB has agreed to engage with Masthead on the setting and determining of levies by March 2011, before the next round of increases. Masthead’s message will be that the current fee structure is disproportionately aligned to the independent broker and the small business versus the larger players in the market. It would also discuss the sharp increase in license suspensions due to late financial statements/reports.
Embracing change
Before getting to the meat of his presentation – where he tackled the concept of building value in your financial intermediary business – Middleton thanked the audience for embracing change and for their continued loyalty to Masthead, despite the organisation introducing monthly fees for its services earlier this year. The challenge to all present was to convert the World Cup euphoria into something enduring for the benefit of all South Africans.
Editor’s thoughts: A financial services professional needs to free up as much time as possible for the business of seeing and advising clients. A ‘one man’ practice with 519 clients would need 56 weeks a year to allow for a 90-minute consultation with each client. Even if these individuals reduce their client bases, they can ill afford getting bogged down with administrative and regulatory issues. Enter the broker organisation. Are you a member of a broker representative body and are you happy with the work the organisation is doing for you? Add your comment below, or send it to [email protected]
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