The financial planning industry is edging closer to true professionalism
Accountants, attorneys and doctors all have something in common. They are considered professionals while their respective fields are recognised as professions. Since the introduction of the Financial Advisory and Intermediary Services (FAIS) Act – and mor
Can financial advisors call themselves professionals?
This question has been playing on the mind of Johan Marais, a regular FAnews reader, who boasts a Certified Financial Advisor ® from UFS and a Diploma in Short-Term Insurance from UNISA. Johan turned to the Financial Planning Handbook to expand his views… According to the handbook financial planning (or the individuals participating in the activity of planning) should exhibit the following nine characteristics before it / they can be considered a profession / professional:
1. The skills required to practice in the profession should be based on theoretical knowledge;
2. There must be a professional association to regulate the conduct of the individual members;
3. A certain minimum period of education should apply before admission to the profession;
4. The competencies of those wishing to practice in the profession should be tested;
5. Those practicing the profession should continuously upgrade and develop their skills;
6. There should be a licensing process;
7. Those practicing the profession should ascribe to a code of ethics;
8. Those practicing the profession should engage in public service and altruism; and
9. The skills acquired by those practicing the profession should be mobile.
Johan believes that the financial planning industry should get a ‘thumbs up’ on each of these characteristics, especially once the FSB has implemented all the rules, regulations and laws currently proposed. A financial intermediary must be licensed with the FSB. He or she must comply with the FAIS Act, General Codes of Conduct and soon Treating Customers Fairly, not to mention the myriad financial services and general laws enacted from time to time. In addition intermediaries must write Level 1 RE (and soon Level 2) and complete continuous professional development (CPD) on an on-going basis. To my mind these requirements satisfy points 1, 3, 4, 5, 6 and 7 listed above.
What about points 2, 8 and 9 you ask? Each of these requirements is met by the Financial Planning Institute of South Africa (FPI) Certified Financial Planner CFP® qualification. But it is not much of a stretch to think of the FSB (with which all advisors must be licensed) as a professional association of sorts… The mobility requirement is met too – because a licensed intermediary who has passed his or her RE exam should be capable of plying the financial advice trade anywhere in the world. Point 8 – although apparently difficult – is also the vaguest. There is no way that an efficient advisor is not satisfying this requirement… After all – the very nature of financial advice makes it an invaluable public service.
Or should they wait until consumers buy into the professional tag?
The man in the street views accounting, medicine and law as a profession. These are the professions that consumers willingly turn to… And when they consult with professionals in any of these fields they expect to receive a hefty bill. Do you think that consumers view their financial planner in the same light as any of the aforementioned?
Johan offers the following scenarios to illustrate the point. Adam is suffering from severe tooth ache. He has an urgent and compelling need to get rid of the pain and will therefore find the money he needs to pay for a consultation at his dentist… He will do whatever it takes to get the cash! Peter has a slightly different problem. He has committed a crime and is facing a possible jail term… Again – Peter will beg, borrow or steal the funds required to pay for a professional legal team to try and keep him out of jail or at least reduce his sentence… He has an urgent and compelling need for legal assistance.
“The situation is entirely different if you try to get Adam or Peter to pay for your financial advice because there is no urgent or compelling need for them to seek your counsel, nor to pay for it,” observes Johan. “There is no fear, pain or discomfort to speak of – and there is no impending doom such as the threat of a jail sentence to force them to act”. Another problem is that people believe there is plenty of time to attend to financial planning. Ask somebody when they intend dealing with their savings or risk insurance requirements and they always trot out the “tomorrow” response.
The missing piece in the professional advice puzzle: your client!
“The financial advisor really struggles to get clients to pay for his advice / services because there is no compelling reason at the current time,” says Johan. “And the respect for – and value of – advice is also deferred to the future”. A client can see the benefit of a trip to the doctor or dentist ‘today’, whereas the value in the advice to purchase a Retirement Annuity is only evident 20 or 25 years hence. The big question therefore becomes: “Can financial advisors take their deserved place as professionals without consumers recognising their skills as urgent and compelling?” They may be able to; but until they have widespread consumer support the professional tag is largely irrelevant…
Final thoughts from Johan
It will be difficult to get this support given the growing reliance on ‘telephone’ advice. Telesales consultants, with silent approval from the regulators, are rapidly reducing the value of advice to nil. And they do so with the full support of the insurance giants. Do our insurance giants not realise that their new business income streams will reduce to a trickle when it becomes too difficult to earn a decent living as an advisor – and there are no advisors left,” he concludes.
Editor’s thoughts: Although Johan’s argument is cheeky it seems reasonable that the strict conditions attached to conducting business as a financial advisor have elevated the activity to that of a profession. (Johan adds that the remaining piece of the puzzle is how advisors command the respect that goes with the advice profession, as well as how to get both the industry and the consumer to pay for it). Do you think that the existing regulatory structure is enough to lift every financial advisor to professional status? And how can advisors convince consumers of this? Please add your comment or send it to [email protected]
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