Lack of regulatory recognition

There is a lack of regulatory recognition between the financial services industry and the financial planning profession.

There is a lack of regulatory recognition between the financial services industry and the financial planning profession. 

Lelane Bezuidenhout, CERTIFIED FINANCIAL PLANNER^® and CEO of Financial Planning Institute of Southern Africa (FPI) said, “It is important to differentiate between the financial services industry and the financial planning profession, as the Professional Body regulates its professionals' conduct in terms of a professional code of conduct and professional standards (i.e., a right to practice), whilst the regulator regulates its licensees (licence to practice) via parliamentary regulations and regulatory sub-ordinate legislation,” said Bezuidenhout.

Industry versus profession

She stated that there is a lack of regulatory recognition of a financial planner as a professional that meets stringent competency standards. 

“This lack of regulatory recognition means that many financial professionals are not yet professionally qualified to give professional financial advice or provide holistic financial planning. To be a CFP^® in South Africa, one must hold an approved NQF 8 qualification as a minimum requirement to apply for professional membership. Candidates must also write a professional competency exam and meet the minimum required experience (three years of work experience or completion of FPI's Approved Mentorship Programme). In addition, they must have professional, ethical standards,” she pointed out. 

The current problem, according to Bezuidenhout, is that anyone can call themselves a financial planner without the required skill, knowledge and experience, which places our consumers at risk. “For instance, a person can call themselves a planner when they only sell financial products linked to a specific financial product provider. Consumers need to understand the difference between a financial planner, adviser, coach, and therapist to choose the level of skill they require confidently.” 

“A CFP^® has the competency to assist clients in making essential decisions in highly uncertain and stressful times caused by the global pandemic, Russian invasion of Ukraine, and local politics. In addition, clients are human beings affected by biases and heuristics, which CFPs^® can manage. Our highly complex environment requires that CFPs^® continue to learn, using recognised Continuing Professional Development hours (CPD) and Personal Development Plans (PDP),” she emphasised. 

“Of note, is that the Financial Services Regulatory Authority of Ontario (FSRA) recently strengthened consumer protection by regulating who can use Financial Planner and Financial Adviser titles. The FPI looks forward to the National Treasury recognising the same, via the incoming Conduct of Financial Institutions (COFI) Bill,” added Bezuidenhout. 

Code of Conduct… lack of understanding

Speaking of advice and competency, at the 2022 FPI Annual Refresher, Bezuidenhout shared the trends in terms of determinations and what this means for financial planners. 

For many years now, Bezuidenhout said the Financial Ombud's time has been consumed by property syndication matters. And now, the Ombud is dealing with matters being referred back to it by the Financial Sector Conduct Authority (FSCA), for reconsideration of issues that the Ombud missed or did not give enough attention to. (This process aligns with section 230 of the Financial Sector Regulations Act 9 of 2017 (FSR Act)). 

“It is worth mentioning that out of the 147 cases referred to the FSCA, 117 cases were dismissed (2020/2021 year). Whilst the Financial Advisory and Intermediary Services (FAIS) Ombudsman's office received over 10 000 complaints last year, only 19 determinations were issued. All 19 determinations dealt with investments in property syndications including Picvest (PIC), Realcor and Sharemax. Not all cases move to the determination stage as many complaints are/were settled, resolved, or dismissed,” she said. 

According to Bezuidenhout, there are some other trends stemming from the determinations, including, “the lack of a proper understanding of Chapter 7, Section 8 and 9 of the General Code of Conduct. Section 8 deals with the furnishing and suitability of the advice, considering the information gathered and financial needs analysis conducted. However, the duty of recommending a suitable financial product or investment that correlates with the client's identified needs and risk profile is still neglected in some cases. This neglect speaks to the overarching general duty of a provider, which is: a provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”

“Section 9, in the General Code of Conduct, refers to the Record of Advice. It seems that some providers still do not adequately complete a record of advice that provides a summary of the information and material on which the advice was based, the financial products/investments which were considered, and an explanation of why the products or investments were selected to meet the client's needs,” she added. 

Again, Bezuidenhout said Financial Services Providers (FSPs) should not underestimate the importance of continuous professional development and how it assists representatives, key Individuals and FSPs to understand regulatory matters and amendments to sub-ordinate legislation, such as updates to BN 80 of 2003 (General Code of Conduct). 

We can learn something

We have one FAIS Ombud case we can perhaps learn something from. “The case deals with a short-term insurance matter. The bottom line of the determination is that the broker was looking for a cheaper short-term insurance premium for his client and instead of adding an open driver policy, stated that the first complainant (who does not and cannot drive as she is too ill and does not know how to drive) was the regular driver of the 1998 BMW 316. It turned out that a family friend had an accident with the car and the insurer, rightfully so, repudiated the claim,” she said. 

Bezuidenhout highlights how the FSP dealt with the complaint and dealings with the Ombudsman's office. She quotes from the determination in paragraph 60: where there is a referral of the determination to the FSCA to investigate the respondent's conduct: “The conduct on which the unavoidable finding of liability has been made is such that it raises questions about the character of the representatives implicated in this decision, namely the broker, her supervisor and the key individuals. I am of the view that their conduct warrants an investigation to determine whether they remain fit and proper to act as FSPs. That is an investigation that falls outside of this office's purview but within the mandate of the FSCA. As such, the facts and information arising from the complaint will be reported to the FSCA in accordance with Rule 10(a) of the Rules.” 

“This means that the FSCA may now, in terms of the fit and proper requirements, also investigate if the FSP, its key individuals and/or the broker are fit to be a licenced FSP and if their licence should be suspended or withdrawn. However, this remains up to the FSCA as it falls outside the ambit of the Ombud,” stated Bezuidenhout. 

“We can learn from this determination that it is necessary to deal with complaints in terms of your own complaints management policy as soon as possible. What we also learn, is that it is important to resolve a complaint received from the Ombud’s office. If the complaint cannot be resolved within six weeks, a response with why it could not be resolved, plus all relevant supporting compliance documentation, must be forward to the Ombudsman's office in the prescribed manner. You can find the Rules of the Ombudsman for FSPs here,” she concluded. 

Writer’s Thoughts:
Bezuidenhout mentioned that there is a lack of regulatory recognition of a financial planner as a professional that meets stringent competency standards, and that CFPs® must continue to learn, using recognised Continuing Professional Development hours (CPD) and Personal Development Plans (PDP). Moreover, the trends stemming from the determinations, she stated, show the lack of a proper understanding of the General Code of Conduct. What are your thoughts on this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

Comment on this Post

Name*

Email Address*

Comment*

 

Submit Comment