Is SA further down the road in financial advice sector?
In South Africa, the financial services landscape is facing a hurricane of changes. And when compared to other countries one wonders whether the industry is on par with these, lacking behind or far exceeding the requirements and expectations.
FAnews chatted to Kobus Kleyn, a Certified Financial Planner, and a Financial Planning Institute (FPI) Award Recipient who recently represented the South Africa financial services industry and profession in New Orleans (USA) during an international media round table about the advice space.
Advisers from five countries compared notes at the 2015 MDRT (Million Dollar Round Table) Annual Meeting in New Orleans in June, as they discussed the critical consumer and regulatory issues impacting their advice world.
“The panel, which comprised highly successful advisers and industry contributors from Australia, New Zealand, South Africa, United States and the United Kingdom, were initially challenged by Michelle Hoskin,Founder of Standards International in the UK to share whether they had personally experienced the financial planning process as clients because it is important to put yourself in the clients shoes and feel and experience what they are experiencing,” he said.
Balancing a fine line
Kleyn believes that South Africa is on par with all countries that took part in the discussion but in some cases, it is leading in the client/adviser relationship space. He mentioned that this has a lot to do with affiliations like the Financial Planning Institute (FPI), the Financial Intermediaries Association (FIA) and a regulatory body like the Financial Services Board (FSB) who have gone a long way to ensure advisers in South Africa are evolving into professionals.
Looking at the regulatory side of the game, Kleyn believes the Retail Distribution Review (RDR) is a game changer for South Africa. Post RDR an advice gap and adviser gap will be formed but will smooth out over time as RDR settles down.
Kleyn believes the ongoing and aggressive implementations of new and amended acts and regulations such as the Protection of Personal Information (POPI), Treating Customers Fairly (TCF), Twin Peaks, RDR, Solvency Assessment and Management (SAM) and many more will clean up our industry and lead to consolidation. However, he says it also becomes a threat for Independent Financial Advisers (IFAs) and brokers due to cost implications and sustainability.
“The clear challenge is that the industry appears to be moving from a macro-managed to a micro-managed system instead of a self–regulatory system within a competitive free market enterprise system. The USA is a great example where the free market enterprise system works well. In South Africa however, the question is will the consumer, intermediary and other stakeholders be able to cope with such a system? I, for one, believe RDR is a great initiative and if implemented correctly, with stakeholders’ input, will give our industry a good boost,” he continued.
“There is no doubt that most advisers will have to take a haircut post-RDR. Such haircuts could be between 15% and 50% and will depend on the spread of products, adviser markets and tenure, assets under management and trailer fees,” he said.
“The most exposed advisers would be the ones with less than five years in the business, and the least exposed advisers would be the ones who have more than ten years’ service. Advisers can be pro-active over the next two to three years to rebuild their income streams and practices by building the “book” and reducing upfront commissions now already,” he continued.
“I believe South Africa’s financial system is world class and we compete with first world players and not emerging market players which is one of the reasons we shared the international round table with the USA, UK and others. Through regulation this is our golden opportunity which will move our industry to the next level. It will keep us not only in line with our international peers, but maybe even set an example for our peers,” he said.
Facing complexities
Consumer education in the industry is a huge challenge as insurance is still sold and not bought. “The financial industry is complex and confusing for the consumer at best and there is just too much representation out there on the types of advisers there are, who they represent and what they can do for clients,” he said.
Kleyn said there is no doubt that the spectrum on client relationships is changing. “Clients are getting much more educated and aware, and are expecting a more holistic approach to financial advice and product sales on a needs basis rather than a push sales basis. Clients are expecting a deeper value proposition and differentiation from their advisers, with professional relationships based on integrity and trust with the utmost ethical standards,” said Kleyn.
Under TCF, which is a driver to RDR, confusion will be removed and clients will be treated fairly, but before RDR comes to full impact Kleyn mentioned that consumers will have to be made aware of RDR and the fact that advice is not free.
“Consumer education needs to be ramped up significantly by all stakeholders including the FSB, FPI, FIA, Financial Services Providers (FSPs) and many more,” he continued.
Building sustainable structures
“Compliance should not be hindering but simply be part of your advice process. If you do the right things all the time compliance will be automated into your systems and processes, which should not become a compelling issue to justify additional costs to your practice. If this can be achieved the consumer should be positively affected and this should mitigate possible advice gaps. It is up to intermediaries and product providers to implement automated compliance processes within the product sales process to make it simple and effective,” he said.
On a personal note, Kleyn noted that advisers have to create passive income and persevere through upcoming industry changes. “Those who do persist will build practices that are so much more sustainable with a structured RDR remuneration system with embedded value. It has to be a win-win situation between clients, advisers and our professions,” he concluded.
Editor’s Thoughts:
Like Kleyn, I believe changes will create a competitive advantage and a sound foundation for the industry to be recognised as one that can be trusted and will lead to much better outcomes for all the stakeholders over the long-term. Do you agree with this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.
Comments
There is however, a small point that needs to be made here... this article stresses a bath of between 15% and 50% on advisors income.
I remember reading a few years back, that the average advisor in SA was earning R18 000 per month. If this is still the case... what plans are life companies putting in place to remunerate advisors... are salaries being looked at?
If this figure is substantially off, I would appreciate someone posting an informed update? Report Abuse