Proactive financial planners should take regulation in their stride
The nearest thing to a crystal ball for South Africa’s financial services regulatory environment is to monitor developments in offshore dispensations such as Australia and the United Kingdom. In a presentation titled Possible Future Scenarios for the Fina
Latest regulatory practices
What can local financial planners learn from Australia and the UK? Recent discussions in Australia – under the heading: Future of Financial Advice (FOFA) – have culminated in a number of new regulations that will “go live” from mid-2012. These include adviser charging, getting consumers to opt-in for certain fee practices, and expanding the availability of low-cost and simple advice. Meyer observed that the Australian regulator had been extremely quick in pushing these changes through. By July 2013 he said Australia would also move ahead with banning commission on risk-based investment products. It remains to be seen whether this intervention results in unintended harmful (to the consumer) practices.
Recent developments in the UK include a retail distribution review (RDR) to ensure that consumers will be offered a transparent and fair charging system for the advice they receive. It is envisaged that UK consumers will be clear about the service they receive. “And the UK regulator wants highly respected professionals dispensing financial advice,” said Meyer. One of the concerns here is that the regulator steps into the space currently occupied by professional bodies (such as the FPI locally). It the regulators push forward on their current trajectory it will not be long before the principles and ethics demanded of financial advisers be prescribed by law!
In addition to these changes there are some major debates playing out in the regulatory environment at present. First among these is the desire, particularly in the UK, to define independent versus restricted advice. Meyer said there was a difference between independence of advice and the independence to build the required solution. A second debate is whether or not to define the term “financial planner” in the regulation. Attempts to define what a financial planner is have thus far proven problematic.
Coming soon, to a regulator near you!
What lies in wait for South Africa’s professional financial planners? Aside from the pointers given by regulators in Australia and the UK we can turn to recent discussion documents circulated by National Treasury and the FSB locally. The questions directed to the industry for feedback to these discussion documents are telling. Obviously intermediary (financial adviser / financial planner) remuneration will be up for review. Meyer pointed out that these changes were a long time coming, having been proposed as far back as the early 2000s when Treasury produced a contractual savings paper.
“Commission in the middle and upper income investment space will go,” he said. “And it will happen soon!” It also looks certain that large upfront commissions in the risk space will be a thing of the past. Five years from today commission, if any, will be as-and-when, with advice fees making up the bulk of intermediary remuneration. Another change that could follow fairly soon is clarity as to what constitutes a broker / financial adviser or financial planner. It is possible that the regulators will require you to meet certain prerequisites before using these descriptors in future. Treating Customers Fairly (TCF) remains high on the agenda, with the onus on each stakeholder in the industry to ‘prove” their fair treatment of consumers.
A glimpse of the future financial planner...
The best advice for financial planners is to act proactively and stay a step or two ahead of the regulators. “There are opportunities, particularly for financial planners who comfortably and confidently charge fees for financial services,” noted Meyer. You must begin planning now to ensure that your practice can accommodate the likely regulatory environment five years from today. Tomorrow’s successful financial planner will voluntarily adhere to higher standards. Meyer shared a number of things financial planners could do to meet this requirement including:
· Link your value proposition to a holistic financial planning offering… (He cautioned against linking either your value proposition or your remuneration to investment returns);
· Build compliance into your business;
· Create a business with a strong corporate identity and a value proposition that can be sold;
· Work with professional partners because you cannot do everything yourself; and
· Live by principles and not by rules.
A proactive approach to regulation will ensure that you can survey any future regulatory dispensation and say: “That was not so hard!”
Editor’s thoughts: Each and every stakeholder in the domestic financial services industry has the opportunity to influence the regulatory environment. Treasury invites comments, criticism and suggestions from affected parties whenever new discussion documents or proposed amendments to regulations are published. Do you feel the current system affords all stakeholders enough input to the process? Add your comment below, or send it to gareth@fanews.co.za
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