FIA welcomes tougher measures to protect investors

The Financial Intermediaries Association of Southern African (FIA) welcomes the inclusion of provisions for stronger actions to protect the investments of consumers proposed in the draft Financial Services Laws General Amendment Bill, as a necessary step

“In some cases, the products in question were deemed an acceptable financial product and offered through properly controlled distribution channels. From the intermediary’s perspective, the risks involved in recommending such products include institutional failure, product failure or simple investment failure where the yields do not match the expectation created.”

Van Pletzen says it is concerning for the industry that generally those who are in the front line representing these failed institutions and products, as well as responding to any queries that arise, are financial intermediaries, most of whom are not the providers of the financial products but rather acting as independent advisors to clients.

“While it is fair to expect that an independent intermediary should perform a reasonable investigation into products before recommending them to potential investors, as well as an evaluation of the investment risks in general terms in order to describe and disclose these to clients, even the largest intermediary organisations are not all sufficiently resourced to undertake such an exhaustive investigation. Ultimately, they should be able to rely on the regulating authorities to have effectively assessed the institutions’ capability to offer sound products.”

Van Pletzen says intermediaries are usually not able, or entitled, to obtain all the relevant documentation and information other than those which the institution sees fit to release. “Furthermore, should an intermediary advise a prospective client against investing in a particular institution on the grounds that it may be untrustworthy they place themselves at risk of legal or commercial action on the basis that such a decision was not 100% soundly based. Such action by an intermediary could spread around the market and possibly trigger the very failure that was feared, resulting in widespread losses.”

“Therefore, more intervention by the authorities makes sense and should be supported by the whole industry. Tighter license conditions on retirement fund administrators are also an important additional protection for investors.”

Van Pletzen says the suggestion that the registrars of Long- and Short Term Insurance will be able to take action against insurance companies that publish “any advertisement, brochure or similar communication … which is misleading or contrary to the public interest or contains an incorrect statement of fact” is to be welcomed.

“Not only are intermediaries often put in a position of having to spend time debunking false claims with clients, but sometimes intermediaries witness consumers actually falling for misleading offers, which could have serious implications, especially if consumers are dealing without a suitably equipped broker.”

“The FIA has offered its support to the FSB in identifying these untrustworthy schemes and institutions in order to prevent more financial hardship for investors,” concludes van Pletzen.