Right steps needed now to ensure future of independent broker industry
The South African broker industry is facing a potential crisis as increasing numbers of broker professionals are leaving the industry or joining alternative models, and there is a marked decline in the number of newcomers. Unless the right steps are taken now, this situation does not bode well for the future of the independent broker industry, says Jacques Coetzer, general manager of Broker Distribution at Sanlam Personal Finance.
According to Financial Services Board (FSB) records, there are around 12 000 licenced intermediaries in South Africa, with less than 20% younger than 35. "The average age of Sanlam’s brokers is increasing. With relatively few newcomers entering the industry as a whole, it is vital that we take action now to ensure the industry remains stable,” says Coetzer.
He says the crucial role independent brokers play in educating clients face to face and assisting them in making the right life insurance and investment choices cannot be overemphasised. "We need to ensure their independent advice remains accessible to South Africans across the economic spectrum in the long term.”
According to Coetzer, brokers are opting out of independent broker practices either permanently or to join the tied sales forces of life and investment companies. The reasons include increasing pressure of regulatory and compliance requirements, and product providers vying for the services of brokers with attractive remuneration structures. "For brokers in a solo or small practice, there is a very real concern around survival of the business. Time previously spent prospecting now has to go into executing compliance processes.”
He says the standard response has been for brokers to focus more on the financially affluent market, selling higher value products in an attempt to make up for costs and time taken up by administration. "The result is increasing vulnerability of the lower- and middle-income market, with fewer brokers selling services and products to a market in dire need of advice and relevant products.”
Barriers to entry for newcomers into the industry include uncertainty over future remuneration regulations and the increasing complexity of all aspects of financial planning.
Coetzer says consumers do not always understand the difference between the services of independent brokers and those of tied agents. "Whereas agents sell the products of the providers they represent, independent brokers can offer unbiased, comparative advice and suggest a range of appropriate solutions for a client’s needs across a spectrum of products. This requires experience and knowledge that cannot be obtained from a website or a call centre. This is why retaining existing brokers and attracting newcomers into the industry, and ensuring they are economically able to service a broad spectrum of clients, is so crucial.”
He says brokers need to be assisted to not only survive, but to flourish. "For a business to grow, its client base is of the utmost importance. We therefore need to support brokers and empower them to have the right relationship with their clients. This is of course also in keeping with the principles of Treating Customers Fairly (TCF). Historically, Sanlam is known for doing the right thing for clients, and we are spending a fair amount of time and energy to help focus the broker business on the benefits of long-term relationships with their clients.”
Other ways in which Sanlam is aiding brokers to increase the economic viability of their businesses are through continuous improvement of the life and investment products on offer, consolidation of non-competitive service hubs, and assisting brokers with compliance issues. This includes making specialists available to support brokers in complex transactions, having tax specialists on hand, and providing brokers with tools and templates to assist with information collecting and process execution. "We are now looking at packaging these offerings into an integrated value proposition for brokers,” says Coetzer.
He says whereas Sanlam fully supports regulatory efforts to improve the value provided by the financial services industry, any changes to the current dispensation should be considered carefully to avoid unintended consequences, and in a way that balances the interests of all stakeholders.
"Sanlam is actively participating in debates on these issues with the Regulator and other parties. Ultimately the industry has to be viable and sustainable both for brokers and their clients.
"The last thing we want to see is brokers dropping out or not entering the industry because regulations have led to their service becoming so exclusive that only a small percentage of the top end of the market can afford a broker. We therefore have to ensure that broker practices remain meaningful, accessible and relevant given the risks they have to take.”
