All systems go as the FIA gears up for an exciting 2014

2014 marks the 10th Anniversary of the implementation of the Financial Advisory and Intermediary Services (FAIS) Act of 2002, an act that changed the financial services landscape by encouraging professionalism among advice givers and extending wide protections to consumers.

Regulation once again stands out as the overarching challenge for intermediaries in 2014. The FIA 2014 game changers are all in varying stages of development and include Twin Peaks, Treating Customers Fairly (TCF) and the Retail Distribution Review (RDR). The Financial Intermediaries Association of Southern Africa (FIA) believes that this year’s opportunities will stem from how South Africa’s risk and financial advisers rise to meet these challenges.

The FIA represents intermediaries in the employee benefits, financial planning (life and investments), healthcare and short-term insurance disciplines, and is well placed through its executive committees, to comment on the challenges and opportunities in each of these areas.

Putting lessons into practice

Chairperson of the FIA Short-Term Insurance Executive Committee, Barry Taylor, points out that if 2013 taught us anything, it is that the insurance underwriting cycle is alive and well.

“Despite poor insurer results, there is more than enough underwriting capacity to fuel competition, which is not always good news for short-term brokers who intend to protect their client bases,” says Taylor.

As in most financial services disciplines, the big challenge for 2014 centres on the huge demand the dynamic regulatory framework places on short-term brokers. The FIA is in ongoing discussions with the regulators on a number of fronts, including the debate around market benchmarks for binder holder remuneration, the broker’s role in terms of operating and ownership of Third Party Cell Captives, TCF and RDR, to name a few.

Although TCF principles make good business sense, one cannot ignore the enormity of the outcomes and regulatory requirements that the legislation introduces. “TCF is not only a product provider issue and will apply to brokers too, particularly where they represent the insurer,” says Taylor. “The opportunity in TCF is to recognise the sales and marketing spin-offs of a practice that is 100% pro-consumer.”

RDR will focus on potential conflicts of interest in the broker and product provider relationship and the FIA is encouraged by its preamble, which states: promotion of appropriate, affordable and fair advice and intermediary services, thus supporting a sustainable
business model for financial advice.

One of the biggest opportunities in the short-term space is to address the ongoing sustainability of the motor book. The FIA continues to engage with the South African Insurance Association (SAIA) in promoting an expanded motor insurance pool to government.

The Human Capital Development project is also worth a mention. The FIA, SAIA and the Insurance Institute of South Africa (IISA) with support from the Insurance Sector Education and Training Authority (INSETA) and the Financial Services Board (FSB) have joined forces to put in place a sustainable learning culture and environment in the industry to ensure its long-term sustainability.

What better opportunity is there than to develop skills and expand your chosen profession?

The bottom line is that while insurance stakeholders are feeling the pinch of regulatory requirements, the FIA remains committed to professionalism, sound governance, excellent service and innovative products. It is important that intermediaries seize every opportunity to expand and improve their businesses.

Looking to solve the medical quandary

The FIA Healthcare Executive Committee is made up half-and-half of corporate brokerages
and smaller healthcare brokers. This enables the FIA to cover all bases when medical scheme broker fees, commissions and other regulatory issues come under the spotlight in 2014.

Chairperson of the Healthcare Executive Committee, Gregory Setzkorn, says that 2013 was tough due to the broad healthcare regulatory environment coming to a near standstill. And it seems
likely that the waiting game will continue in 2014. “This year we hope for clarity on what the Medical Schemes Act holds for healthcare brokers and the broader advice industry,” says Setzkorn.

Another issue on which the FIA is seeking clarity is demarcation, which remains up in the air after National Treasury received more than 300 submissions on its initial proposals. Treasury has promised an amended bill in the first quarter of the year and the FIA is keen to learn what the regulator means by ‘aligning’ the medical schemes legislation with the insurance acts.

As we enter 2014, the Healthcare Executive Committee will continue to challenge negative perceptions around healthcare brokers. Our main focus through 2014 will be on the revised demarcation bill, positioning healthcare brokers in the RDR debate and engaging with
the Department of Health on its reluctance in increasing medical scheme broker commissions. The sad fact is that if one simply converts the current healthcare broker commission into a fee, the entire model becomes unworkable.

As with most of the savings and insurance disciplines, our major opportunity is in bringing more uninsured consumers into the medical scheme fold.

Client’s first

Gavin Came, Chairperson of the FIA Financial Planning Executive Committee, says that the FIA will play a crucial role in ensuring that intermediary interests remain on the agenda as National Treasury embarks upon retirement reforms and the FSB outlines its position on remuneration for advice.

These issues have major implications for FIA members and our main opportunity for 2014 is to make sure that the legislation aligns with their interests. To this end we will take a disciplined client-centric approach when working on our inputs and responses to the FSB’s RDR paper. We will not tackle the debate from a selfish “what about my commission” stance, but rather consider the impact of the review on our clients.

The FIA has made a significant contribution to government’s thinking on retirement reform, both by way of written submissions and participation in workshops. These reforms have a knock-on effect on virtually all aspects of the financial planning industry and will directly impact living annuities, preservation funds, retirement annuities and employer-sponsored pension funds, to name a few.

“The bulk of our members’ assets under management vest in such products, again highlighting our dual role in negotiations to secure a better deal for both the adviser and policyholders,” says Came.

The FIA believes that advisers should focus on the positives that arise from sensibly negotiated regulation. The good news is that both Treasury and the FSB have some incredibly smart people working on these reforms, and they value and respect the FIA’s inputs.

Employee benefits go under the spotlight

The FIA Employee Benefits Executive Committee had its hands full through 2013. Social reform dominated discussions with particular attention given to the National Treasury papers on retirement reform.

“Our comments on the reform and remuneration papers, together with frequent engagements with Treasury, have repeatedly emphasised the importance of intermediation in the employee benefits (EB) industry,” says Chairperson of the Employee Benefits Committee, Jennifer Grefen.

Where will the Employee Benefits Committee focus its energies in 2014? The major battles will take place under the RDR and TCF banners where it is imperative that the industry settles on a suitable remuneration model for intermediaries. The FIA’s goal is to ensure fair remuneration for advisers’ work and expertise.

FIA members can rest assured that the Employee Benefits Committee will represent their interests to the regulators to achieve the best possible outcomes this year.

Moving forward with purpose

The FIA looks forward to 2014 as an opportunity to engage with regulators to ensure that risk and financial advisers’ interests are appropriately represented. We will play a leading role in the RDR discussion and ensure through TCF that product suppliers take joint responsibility for product failures, product training and good service.