The Value of Good Advice

The Financial Services Association of Southern Africa (FIA) would like to congratulate the country’s risk and financial advisers on a job well done.

"As 2013 draws to a close we celebrate an industry that is built on professional advisers who provide advice per the exacting standards required by one of the best-regulated financial services environments anywhere in the world,” says Justus van Pletzen, CEO of the FIA.

The 2004 implementation of the Financial Advisory and Intermediary Services (FAIS) Act along with its accompanying Regulations contributed to a step change in financial advice-giving. The Act, which sets out clear guidelines on how risk and financial advisers should interact with their clients, has already delivered positive outcomes for consumers.

"The positive impact of balanced financial services regulation supported by growing professionalism through trade associations such as the FIA is evidenced by the on-going improvement in the standard of advice-giving by our members,” says Van Pletzen.

"Both the regulator’s annual report and feedback from the industry’s consumer protection schemes confirm that we are stamping out poor advice and reducing the number of questionable financial products offered through the intermediated distribution channel.”

The impact of pro-consumer legislation on the financial services consumer can be assessed by studying the complaints statistics published by South Africa’s various consumer protection schemes.

From a financial intermediary perspective the best place to start is the 2012/3 FAIS Ombud Annual Report. The FAIS Ombud was established in terms of the FAIS Act to facilitate complaints by consumers against intermediaries and can award compensation of up to R800 000.

The FAIS Ombud received 9 949 new complaints in the period under review. Of the 9 033 complaints finalised during the year, 4 550 (50.4%) were referred to financial institutions or other Ombudsman schemes, 3 096 (34.3%) were dismissed and 1 354 (15%) were settled. There were only 33 determinations against financial services providers in the year.

Advisers play an important role in assisting consumers in choosing and interacting with their private medical schemes too. It is the medical scheme adviser – or healthcare broker if you prefer – who has to guide South Africa’s consuming public on the best scheme and benefit option combination for their needs. And they’re doing a great job.

The latest Council for Medical Schemes (CMA) Annual Report reveals that there are 3.8 million main medical scheme members (and 4.8 million dependents) belonging to 92 private medical schemes. It also shows that only 1 out of 4 651 complaints received by the Council in the 2012/13 year related to ‘Incorrect Advice by broker’.

These pro-consumer statistics repeat at the Ombudsman schemes that hear complaints against South Africa’s short term and life insurers. There were only 9 123 consumer complaints to the Ombudsman for Short Term Insurance (OSTI) over the latest year, despite millions of private and commercial policyholders. (The OSTI was set up to hear complaints against insurance companies).

The Association for Savings and Investments (ASISA) notes that 86% of South Africa’s 5.1 million new recurring premium policies invested in by the public in the six months to 30 June 2013 were introduced either by independent financial advisers or so-called tied agents. When you consider that only 9 592 complaints were brought to the Ombudsman for Long Term Insurance it is clear that the overwhelming number of transactions take place without a hitch.

The bottom line is that South Africa’s risk and financial advisers are doing a fantastic job while consumers who are unhappy with the service or performance they receive from either their financial adviser or insurer have numerous channels to seek compensation.

"The statistics confirm that bad advice exhibits in only a handful of the financial services transactions concluded each year,” says Van Pletzen. "We congratulate both the intermediary and product provider for their contributions to a professional financial advice industry.”

He adds that financial services consumers who have already benefited from the decade-long application of FAIS will soon enjoy additional protection thanks to six Treating Customers Fairly (TCF) principles that will be enshrined in financial regulation by 2016.

"The Financial Services Board (FSB) is introducing TCF to ensure that consumers are sold an appropriate product with appropriate service when they purchase investments, life assurance or short term insurance,” concludes Van Pletzen. "It aims to entrench a culture of fair treatment of consumers at every company involved in the design, provision and / or distribution of an insurance or investment product.”

TCF requires that both the product provider (the bank, insurer or investment house you transact with) AND adviser (your financial planner or insurance broker) deliver a product and service that meets your reasonable expectations.