The Financial Planning Industry in 2013

Regulatory challenges will dominate the financial services landscape through 2013. Issues such as the commission versus fee debate and regulatory intervention in intermediary remuneration will remain in focus, as they have been for the past decade.

The FIA will have to respond to these challenges by demonstrating the value that well-remunerated, trained and motivated intermediaries bring to the table. Good financial advice encourages consumers to save and empowers them to provide for both themselves and their loved ones through retirement.

The commission or fee paid in relation to a financial product or service is justified by advice that extends way beyond the product or service provided. It is also worth noting that while fees are not unusual in sectors of the financial services industry - such as top-end financial planners, corporate short term insurance and services related to group scheme administration - the majority of middle-of-the-road intermediated business is entered into on the basis of regulated maximum commissions paid by product houses. By banning commission outright the regulators run the risk that entry level financial product consumers are advised by advertising agencies rather than benefiting from a carefully constructed financial plan.

There are two other developments that will have a major impact on the industry this year. These include the Treating Customers Fairly (TCF) initiative and National Treasury’s nation-changing review of the retirement funding landscape.

The FIA and its members welcome TCF as a logical extension of the Financial Advisory and Intermediary Services (FAIS) Act into the product provider space. The legislation will align product design and on-going support with the provisions of the FAIS General Code of Conduct to ensure the ethical treatment of customers.

TCF will force industry stakeholders to consider the fact that products sold today will have to perform upon death, disability or retirement many decades after their inception. The long term quality of service and product efficiency needs to be built-in to the product rather than it relying on personalities to deliver on its promise.

National Treasury’s recent papers on repositioning the Retirement and savings landscape in SA will also start impacting in 2013/4. Saving for a comfortable retirement is both in the national interest and in the interest of each individual in our society. The role of the intermediary in supporting the products and initiatives that enable this goal cannot be underestimated.

Consumers understand the need to set aside funds for the longer term, but often don’t buy into the need to sacrifice current consumption to achieve these goals. Intermediaries are well versed in assisting clients to achieve this balance. With properly considered changes to the regulatory environment the nation’s intermediaries will be able to make a significant impact as we move forward in this new age of retirement provisioning.

The financial harm caused by failed Ponzi schemes and other questionable financial offerings continues to do serious damage to the reputation of intermediaries, players in the financial services sector and the regulators. It is hoped that 2013 will bring about a maturity of view on the part of the legitimate players combined with greater vigilance by the authorities in stamping these schemes out at inception rather than after consumers have lost millions of rand in hard-earned savings.

While the FSB, Treasury and member organisations such as the FIA focus on local regulatory issues, intermediaries will be hard at work addressing challenges at the front line of financial advice. South African families remain under-insured against the death and disability of their respective breadwinners. The life cover that is typically in place only settles some of the family debts, such as in the case of funeral insurance or credit life cover over a financed asset.

Life Insurance can only achieve its goal of creating a better life for future generations when it adequately replaces the lifetime income earning capability of the breadwinner. Through 2013 the industry should strive to narrow the life insurance gap so that dependents are provided a secure education and lifestyle when tragedy befalls their households.