Shifting deadlines and long-overdue discussion papers impact heavily on financial advisors
Justus van Pletzen, CEO of the FIA
A regulatory framework is necessary in all forms of life. It gives order to chaos and allows the industry and regulators to establish an understanding which creates a favourable working environment. However, there is a fine line between regulation and ove
Our members accept regulatory interventions such as the Financial Advisory and Intermediary Services (FAIS) Act of 2002 and the enforcement structures put in place to police it. We also participate in the debates that inform legislation and assist our members in clearing regulatory hurdles as they arise.
Since our 2008 launch the FIA has supported the Financial Services Board (FSB) and National Treasury on most of the initiatives taken to fine-tune industry regulation to the benefit of financial services consumers.
No place for a super regulator
That said, we note with concern the current media discourse on the powers and legitimacy of the FSB, in particular the desire of the regulator to increase its powers and absolve itself from any and all ‘mistakes’.
In his response to an article by David Gleason (FSB exculpates itself in advance, Business Day, 20 June 2013) Ismail Momoniat, deputy director general at Treasury, writes: “Once we accept that a regulator is necessary, it then follows that regulators such as the FSB should be protected from liability when exercising its powers in good faith.”
Michael Coulson (letter to Business Day, 4 July) disagrees. “Good faith is no defence in a court of law,” he says. “The more powers are given to officials who are otherwise accountable to nobody, the greater the need for a regulator to be held liable for errors or misjudgements.”
Entrenching power through law
Yet the Financial Services Laws General Amendment Bill 2012 – also known as the Omnibus Bill – proposes major amendments to 11 financial sector laws, ranging from the Pension Funds Act to the FAIS Act. In its current form this Bill does exactly what Momoniat proposes: It seeks to inflate the regulator’s powers and indemnify the FSB.
Can the FIA accept a financial services landscape where certain parties enjoy absolute legal indemnity? We do not believe that the regulator, the consumer, or even the President should be unaccountable.
Our members already experience this ‘free from liability’ attitude in their dealings with the FAIS Ombud, the dispute resolution scheme established by the FAIS Act. Complaints against risk and financial advisors are frequently resolved in favour of the consumer with scant concern for fairness or the law.
Many Ombud determinations have been questioned on the grounds that the scheme does not follow established legal principles, is inconsistent in the application of provisions of the FAIS Act and denies leave to appeal as a standard operating procedure.
An unfair burden
“The structure of South Africa’s financial services enforcement environment means that intermediaries are the ‘catch all’ for consumers seeking redress due to losses incurred at every stage of the product lifecycle,” says Justus van Pletzen, CEO of the FIA. “As a result our risk and financial advisors are even held liable for institutional failure.”
“Despite our members doing everything possible to provide a professional service to their clients – and doing so within the frameworks established in law – financial advice has become a risky business. It is as if the intermediary is the only person in the financial services chain that is being held up to scrutiny.”
Treat advisors fairly too
The FSB expects financial services providers to treat financial consumers fairly. It makes sense then that the same courtesy be extended by the regulator to risk and financial advisors. As part of this fair treatment the regulator should consider the impact of both increasing legislative intervention and regulatory uncertainty on financial services businesses.
“The small and medium-sized practices that fit our typical member profile face many operational difficulties,” says Van Pletzen. “Like any profession or business they engage in short, medium and long term strategic planning – a process made virtually impossible due to regulatory uncertainty.”
It is worth considering how regulation, shifting deadlines, rising compliance costs and remuneration reviews impact South Africa’s risk and financial advisors.
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An intermediary’s point of view As a practicing financial services intermediary I welcome the positive changes that have shaped my industry over the past decade. I fully support the requirement for fit and proper advice and was first in line to fulfil my regulatory examination requirement. I have experienced ‘first hand’ the benefits to my business, my staff and my clients of increased professionalism in the industry. The difficulty I have is in determining what is required from my business over the next five years. Instead of the clear roadmap the industry was issued with a decade ago the way forward is now clouded by delays, confusion and uncertainty. The biggest confusion stems from compliance requirements in a changing regulatory environment. In addition to providing good financial advice to my clients I must also worry about my ability and mandate to provide on-going advice and support. From clarity to cloudiness Five years ago I knew that I would have to complete regulatory exams (level 1 RE) after which I would have to tackle level 2 product exams and Continuous Professional Development (CPD). The industry responded positively to the level 1 requirement and has since complied. We also planned extensively around implementing level 2 and CPD. But the FSB had to pull the plug on the project in the very year implementation was due. While I welcome their decision – the industry was not ready (in terms of infrastructure and resources) to implement this regulatory pipe dream – it creates more uncertainty. Instead of proposing a new time frame for level 2 and CPD, or scrapping the proposals in favour of a more workable solution, the FSB has indefinitely delayed its guidance on the matter. Both the intermediary and product providers have pushed hard to meet the various deadlines set by the regulator only to be faced with last minute reprieves. We need achievable deadlines, set once and then adhered to! Long delays and uncertainty The ‘waiting game’ is wreaking havoc across the financial services landscape. What we need from the regulator is professional service and fair treatment. Answer my correspondence swiftly, do not stall on policy discussion and debates, steer clear of becoming an ‘all powerful’ and dictatorial regulator and consider practicality when passing laws. I would also venture that the industry needs a breather from the flood of regulation and legislation it is currently subject to. Each new law requires financial services providers to implement new systems and procedures – often at huge cost – despite the current environment offering more than enough protection to consumer and provider alike. The ‘Elephant’ in the room I have to operate my businesses without any certainty around the nature of or quantum of my income. The regulator holds me accountable for my clients’ financial wellbeing on the one hand – while making every possible effort to limit my remuneration for this risky service on the other. Whether I’m involved in the short term, long term, financial planning (risk and investment) or healthcare discipline, my income is under attack. I frequently hear from industry associations, from regulators and from insurers that commission and fees are being done away with in countries such as the UK and Australia. My questions: How can anyone expect an intermediary to offer professional services without compensation? And how can I run my business and protect financial services consumers if I am not sure how and if I will be remunerated going forward? |
Final words
“As an industry we hope the Retail Distribution Review (RDR) will shed light on what constitutes fair remuneration in the financial advice space,” concludes Van Pletzen.
“Our wish is that the RDR focuses on a fair level of remuneration to enable an intermediary to run a professional advice business and fulfil their obligation of providing good financial advice to their clients – today and into the future.
“Uncertainty about regulation – uncertainty about what constitutes financial services and advice – and uncertainty about levels and methods of remuneration are causing more harm than good across the industry.”
Editor’s thoughts:
The FSB has been contacted for comment and the FAnews will be doing a follow up article once it receives their feedback. Do you feel that the FIA’s concerns are legitimate? Please comment below, interact with us on Twitter at @fanews_online or email your thoughts jonathan@fanews.co.za.
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