What customers want… Why trust is the cornerstone of financial planning

20 October 2017 FPI

Regulators and financial planning professionals agree – financial sector regulation must promote access and inclusivity; ensure positive financial outcomes for consumers; and promote trust in advice, the financial planning profession and financial products. This is the message from a panel debate on regulatory change, held on the first day of the 2017 FPI Professionals Convention in Cape Town from 19-20 October 2017.

The panel discussion was facilitated by Ian Middleton, CEO at Masthead, and included Caroline da Silva, DEO: FAIS at the Financial Services Board (FSB), David Kop of the FPI and Gerhardt Meyer of Old Mutual Wealth (representing the FPSB). Although the ongoing Retail Distribution Review (RDR) was on the agenda it quickly became clear that the consumer – or client in financial advisor parlance – was central to every aspect of South Africa’s recent financial services regulatory interventions.

“Towards the end of the 1990s the industry took a shift from being distribution-focussed to having a consumer focus – companies started building the customer into their processes and strategies,” said Da Silva. She added that this shift was difficult because insurers too frequently viewed their distribution channels as their customers. This misalignment was one of the drivers for subsequent wave of global financial services regulation including RDR in the UK (and South Africa) and FOFA in Australia.

In SA the FSB opted for principles-based regulatory interventions aimed at creating a sustainable industry that treats customer fairly and in which customers can have complete trust. There was no real difference in the policy approach between Australia, the UK and SA – each having customers at their centre – but the level of engagement with industry stakeholders varied widely. “There is a natural opportunity for the regulator and professional body to work together – one promotes professionalism and the other provides the rules and guidelines to achieve it,” said Meyer. Regulators and professional bodies were encouraged to work together to shape the future of regulation and advance professionalism as their interests were closely aligned.

SA’s financial planning professionals have met the challenges associated with principles-based regulation in their stride. “We realise that regulation such as RDR is all about focusing on the client and that the predominant issues are around compensation and we therefore urge our members to be introspective about the value proposition that they as IFAs offer to the client,” said Kop. “Regulation follows behaviour so there is an obligation on the financial planning industry to self-regulate”. He added that it was important to replace the old ‘tick box approach with a consideration for what is important to the client.

An oft-forgotten role that customers play is to police the market they transact in. “The more informed customers are the more regulators I have out there in the market,” said Da Silva. “We have a responsibility to educate customers on the move towards paying for advice and the value of advice without making it too complex”. Education initiatives under the RDR banner must highlight both the value of advice and value of advisors as well as give them complete trust in the financial services sector.

The power of an association such as the FPI vests in its membership and their combined reach. “Although the association engages in various education initiatives it is our 6800 members who are doing the real work,” said Kop. “We tell people what they can expect and it is up to our CERTIFIED FINANCIAL PLANNER® professionals to ensure that their experience matches their expectation”.

According to Da Silva, future regulation will be comprehensive, consistent and proportional. It will have to meet additional tests of lowering costs, improving access and reducing complexity. She hoped that the industry would address two major hurdles in the coming three to five years, namely access and usage. “There are a number of usage barriers that come up where a customer does not trust the system,” she said. This contributes to the search for high yield which drives people to shadow or illegal markets dominated by illegal products, Ponzi schemes and worse.

In closing Da Silva wished for a ‘mindset shift’ through the financial services industry wherein all stakeholders understood what conflict of interest was and how it affected their behaviour as well as major improvements in trust and financial inclusion. Meyer agreed and encouraged partnerships between professional bodies and their member and professional bodies and regulators.\

But the last word goes to Kop, who concluded: “We need to achieve the objective of the consumer having trust in the financial planning profession – if we get that right and can stand alongside other professions, that would be a remarkable success”.

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