Is your product provider playing ball?
The modern day financial services industry is a complex mix of consumer, financial intermediary, product provider and regulator. These stakeholders are governed by laws that have been put in place largely to protect the end consumer. The most often quoted Act is the Financial Advisory & Intermediary Services (FAIS) Act which informs financial advisers and product providers of their duties in supplying fit and proper financial advice.
Like most pieces of legislation the FAIS Act hasn’t been totally free from controversy. Many players in the financial services industry have questioned whether certain provisions in the Act were ‘realistically’ enforceable. One of the early questions which remain unanswered is how a ‘tied-agent’ can give fit and proper advice when his product range is set in stone? Said agent would probably recommend the product he represented whether there was a better option on the market or not!
Making it difficult for brokers to comply
Other issues went around the difficulty in comparing products offered by different product houses. The life and death & disability exclusions on risk products are a case in point. Comparisons on a premium only basis are wholly inadequate – and a more comprehensive analysis would probably require a team of actuaries.
The new Act created administrative issues too. We recently received an email from one of our readers outlining some of the difficulties brokers have when trying to comply with the raft of regulation. “How are we to service our clients in terms of the FIAS Act if the product supplier will not give us access to our client’s information because we do not give them enough new business?” he asked. He asked this question after trying in vain to access a client’s information from one of the country’s large assurance companies. They weren’t prepared to supply the information because his broker relationship with the company had been terminated years earlier. This issue has since been resolved; but not without a great deal of effort.
A second issue raised by our reader was whether ongoing product provider support (specifically relating to requests for information) should be conditional on the broker writing new business with the product provider. What these questions highlight is the gaps that exist when industry regulation conflicts with the internal policies of the various stakeholders. The broker has to comply with the many conditions set out in the FAIS Act regardless of whether his relationship with a particular product provider is in tact. And the product provider is often loath to allow said broker to further his relationship with the client for fear of losing additional business. This pressure is probably highest when the broker requesting the information is not linked to the product provider any more.
Issues of client confidentiality
Obviously we don’t expect the product provider to hand out a client’s portfolio to anyone who requests it. That would amount to a gross violation of the client’s right to confidentiality – and would certainly contravene sections of the proposed Customer Protection Bill. But where the broker’s client has given written permission for the broker to obtain such information we cannot see any reason why a product provider would deny access; or stall the process.
It appears this issue is much larger than a single broker and product provider – so we’ve decided to start our own investigation into the matter. We invite you to share your experiences with us. Do you have examples of how product supplier policy is impacting on your ability to provide fit and proper advice? We’ll compile a list of issues from this feedback and ask the product providers for their response… It could make for some interesting reading!
Editor’s thoughts:
Today’s tough regulatory environment requires proper communication between product supplier and intermediary. Unfortunately there are situations where these channels break down, leaving one or the other party unable to comply. We would like to find out more about experiences you’ve had when dealing with product providers – along with you comments and suggestions on how two-way communication between broker and provider can be improved. Send your comments to [email protected]
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