Cleaning up the financial services space

Gareth Stokes, FAnews Online Editor

The Financial Intermediaries Association (FIA) represents more than 15 000 licensed financial advisers throughout southern Africa. The role of this intermediary representative body is primarily to represent, protect, promote and further the common interests of its members. The FIA frequently engages with industry stakeholders, regulatory bodies and government departments to carve out the legislative environment under which all financial intermediaries ply their trade. There have been successes and disappointments over the years.

An association draws strength from the quantity and quality of its member base. Over time financial services intermediary bodies have been hard at work to enhance the status of their members to that of professionals. The focus has been on education and compliance within an increasingly regulated environment. A professional service by intermediaries is supplemented by the recently introduced RE1 and RE2 exams, for example. These mandatory qualifications have to be completed by all representatives of Financial Services Providers (FSPs) who interact with clients. In a more recent initiative the FIA has promised to take a tough stance against unethical intermediaries. It’s hoped this will further build the image and reputation of professionals in the financial advice space as well as improving confidence among financial services consumers.

A new code of conduct

How do you improve the service level across a diverse group of members? The first step is to create a set of rules to guide intermediary behaviour. The FIA took another step in this direction when it recently adopted a new FIA Code of Conduct (available at http://www.fia.org.za/) to govern its members. It’s also important to make sure the products and services your members ‘sell’ are top class. Intermediaries have long complained over double standards from the regulators when it comes to tackling product providers.

To this end the FIA undertook to “identify unscrupulous service providers and their products!” Seamus Casserly, President of the FIA, says the FAIS Act, which is regulated by the Financial Services Board (FSB) and has been in place since 2004, is unfortunately being repeatedly breached by unethical financial service providers who in some cases, are registered with the FSB. “Our members, who comprise nearly 3 000 individual and company financial services providers, including most of the major and professional individual financial intermediaries, witness regular misconduct of product providers and advisors,” he says. He also promised tough action against product and service providers whose actions tarnish the industry.

Promoting a whistle-blowing culture

The FIA will rely on its extensive member network for information of service providers who are blatantly misleading potential clients or offering poor advice. Transgressors will then be taken to task through existing industry watchdogs. “The executive of the FIA have been tasked to work closely with the FSB, devising a program whereby we can effectively cleanse the industry of the bad apples,” says Casserly.

Members must ‘toe’ the line

It is hoped that the introduction of the new FIA Code of Conduct, mentioned earlier, will lift standards across the industry and further protect consumer rights. Casserly notes: “One of the key objectives of the code is to consistently promote the improvement and standard of financial products, financial advice and intermediary services provided within the industry.”

The Code requires FIA members to:

· Conduct their business activities in the utmost of good faith, honesty, integrity and transparency and consistently uphold the interests and needs of their clients before any other consideration;

· Ensure that any information acquired by a member from a client will not be used or disclosed unless the written consent of the client has been obtained to do so, except in the course of negotiating, maintaining, renewing or servicing the client's financial needs or where required by law;

· Obtain all material information from the client that is reasonably available and communicate this to the underwriter where business entails the assessment of acceptance of any risk by an underwriter; and

· At all times comply with legislation relating to the financial services industry. In particular, they will only offer advice and render intermediary services in respect of financial products for which they are authorised or mandated in terms of the Financial Advisory and Intermediary Services Act, 2002. They will ensure that their employees fully understand the member's obligations under the Code and any other guidelines that may be issued.

The Code is a nice touch and echoes similar documents recently revised by the South African Insurance Association (SAIA). Over time the continued self regulation of the industry by organisations like the FIA will minimise the need for ongoing legislative intervention.

Editor’s thoughts: The new FIA Code of Conduct is another welcome step towards professionalism in the financial intermediary space. Have you read the new FIA Code of Conduct? If so we’d love to hear any comments you might have on the topic. Add your comment below, or send it to gareth@fanews.co.za