Independent financial advice is pivotal in improving access to financial products and addressing South Africa’s poor savings culture

South Africa’s finance and risk advisers find themselves at a defining moment in the history of financial services provision.

They are practising at a time when the definition of intermediation and financial advice – key components of their livelihood – are under close regulatory scrutiny. To further complicate matters the Financial Services Board (FSB) will also explore what constitutes fair remuneration for financial advice when it publishes its Retail Distribution Review (RDR) paper in October this year.

The Financial Intermediaries Association of Southern Africa (FIA) is holding a watching brief for its risk and financial adviser members as issues such as wider access to financial products and fee-for-service versus commission are unpacked. “Our 2013 Spring Regional Conference is themed ‘Intermediation Redefined’ in acknowledgement of the dynamic environment in which our members conduct their business,” says Justus van Pletzen, CEO of the FIA.

The conference was an opportunity for financial product suppliers to engage FIA members on the future of the intermediated (broker assisted) distribution channel. During his presentation to the Johannesburg conference, Jacques Coetzer, General Manager: Broker Distribution at Sanlam Personal Finance observed that risk and financial advisers were under considerable pressure at present.

Profit margins have been squeezed by higher compliance costs and the need for advisers to spend more of their time on complex administrative tasks rather than selling. And there is a strong possibility that revenue proposals in the RDR will further dent the bottom line.

Coetzer believes that the best way for risk and financial advisers to secure their short term survival and long term sustainable growth is to place clients at the centre of their business: “If you do right by your clients and form strong lasting relationships with them then all stakeholders in the industry will benefit.”

The big question is whether advisers will be able to service consumers adequately if their revenue comes under threat. “One of the ironies in the current round of consumer regulation is that some of the steps introduced to protect consumers could be detrimental to them,” says Van Pletzen.

“Because independent financial advice is pivotal in improving access to financial products and services any punitive actions to reduce intermediary remuneration – thereby impacting on the adviser’s ability to service existing and source new clients – should be carefully weighed up.”

South Africa’s financial services providers and advisers are among the most regulated in the world thanks to the Financial Advisor and Intermediary Services (FAIS) Act of 2002 and its accompanying Codes of Conduct. “FIA members have wholeheartedly supported recent regulatory interventions including the requirement to sit regulatory exams,” notes Van Pletzen. “And we remain committed to negotiated pro-consumer improvements to the legislative environment.”

The pending Treating Customers Fairly legislation sits well with risk and financial advisers because they appreciate that the client is their most important asset. “The on-going advice requirements introduced by TCF make common business sense to advisers,” agrees Coetzer. “To ensure our success we have always had to explain what the client is buying, ensure that the product and services are appropriate for his or her needs and see to it that the product performs as promised.”

The fair treatment of customers also requires that consumers are educated about the financial product they buy. There is no doubt that the risk and financial advisers at the heart of most insurance company distribution strategies will play a major role in fulfilling this requirement.

“The foundation for a sustainable practice is to make regulatory change work for you,” concludes Van Pletzen. “TCF will reinforce the good relationships you already have with your clients and assist you in building a sustainable and profitable financial advice practice – the trick is to find similar positives from other pending legislative interventions.”