Financial Sector Code will reignite transformation initiatives across the financial services industry

The Financial Sector Code (Code), gazetted in November 2012 and launched in July 2013, commits all participants in the financial services industry to actively promote a transformed, vibrant and globally competitive financial sector. It applies to multiple

Companies that generate turnover of less than R5 million per annum are defined as Exempted Micro Enterprises (EMEs) and do not have to be measured in terms of the Code, they are automatically awarded 100% BEE recognition.

“The fact that many of our members are EMEs does not prevent our organisation from being actively involved in transformation initiatives, most notably through our participation in the short term insurance sector Human Capital Development project,” says Justus van Pletzen, CEO of the Financial Intermediaries Association of Southern Africa (FIA).

In an effort to keep members up to date with black economic empowerment (BEE) requirements and objectives the FIA invited Leila Moonda, CEO of the BEE Institute, to address its 2013 Regional Conferences at venues throughout South Africa. Her presentation included an overview of government’s empowerment initiatives and a detailed look at the components of a typical financial advice practice’s FSC Scorecard. A maximum of 83 points will be awarded on the scorecard.

Brokerages with turnovers of R5 to R35 million are classified as Qualifying Small Financial Enterprises and will be measured against the DTI’s Qualifying Small Enterprises (QSE) scorecard under seven elements including Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio-Economic Development.

“Brokerages are exempted from the Empowerment Financing and Access to Financial Services requirements,” says Moonda. “But they will play a crucial role in assisting insurance companies to achieve maximum points in the Access category.”

Product suppliers in both the life and short term industries will have access targets based on the income tax threshold of R60, 000 per annum for individuals and double that amount for families. How will these targets be met? Moonda believes that insurers will have to develop affordable products and tweak their distribution models to reach previously neglected segments of the market.

“Insurers will find it almost impossible to achieve their financial access targets without on-going assistance from risk and financial advisers,” says Van Pletzen. “If they want to make greater inroads into the low income market they will have to focus more of their attention on broker led distribution than ever before.” He added that risk and financial advisers – and the advice they dispense – were a common sense solution to the FSC objectives of access and consumer education.

“The challenge for brokers is whether they will be able to distribute products within the affordability criteria that insurers will have to implement,” says Moonda. “If they can rise to this challenge then there is little doubt they will be at the forefront of transferring knowledge and skills to consumers.”

South Africa’s risk and financial advisers are better positioned than ever to assist with consumer education initiatives. Since the Financial Advisory & Intermediary Services (FAIS) Act came in force the levels and standards in the field have been considerably enhanced. Advisers have to comply with the Act by giving Fit & Proper advice at all times.

“Our members have long since transcended the ‘product seller’ tag,” concludes Van Pletzen. “In addition to being knowledgeable on the products they sell FIA members are willing and able to assist clients in making informed decisions about their finances and lifestyles.”

“A dedicated risk or financial adviser will act both for individual well-being and the public good by developing the consumer’s knowledge and understanding of the financial sector and its products and services.”