The Cost of Compliance Survey Financial advisors have a wealth of experience to offer
01 November 2012
Gareth Stokes, FAnews
What does the South African financial advice landscape look like? In the first of five articles we present a concise view of the 21st Century intermediary environment… This view is informed by comprehensive feedback from 562 financial advisors as published in The Cost of Financial Advisory Business Compliance in South Africa 2012 Survey.
The Cost of Compliance 2012 Survey is a joint initiative by The Institute of Practice Management (IPM), the FPI and FAnews. It reflects the views of business owners, representatives and key individuals as well as persons with a Category I, II, IIA, or IV licence currently plying their trade in the South African financial services industry.
R1.28 billion and counting
The survey hopes to promote a better understanding of how the rising cost of compliance threatens the livelihood of small and independent financial practices. Johann Maree of the IPM estimates that the industry will fork out some R1.28 billion for Regulatory Exams alone, with a typical one-year Continuous Development Cycle (CPD) for representatives and key individuals running to R120 million!
The Cost of Compliance issues will unfold later in this series. Our starting point is to consider the experience and qualification levels currently on offer in the financial advice space. Among the key findings of the 2012 survey is that the wealth of industry experience among financial advisors does not reflect in the financial planning qualifications they possess.
An ageing industry
Beginning with experience the survey reveals that some 57% of advisors have been in the industry for more than two decades while a further 16% of respondents have been in the industry for between 15 and 20 years. Only a handful of respondents (15%) reported less than 10 years in the sector.
"The chart confirms that the majority of advisors participating in the survey have been in the industry for a long time and are well-established in their chosen profession,” says Maree. "This is hard-earned experience that cannot simply be replaced”.
The experience statistics are confirmed by independent studies carried out by www.practice101.net, which suggests the average age of the South African financial advisor is 54 years. It seems, therefore, that approximately 70% of the advisor force is already older than 50.
Looming independent advice shortfall
"Over the next decade many of these financial advisors will be looking forward to retirement,” says Maree. "Since there are few new advisors coming into the industry this will bring pressure on all independent advisors’ succession and continuity plans, even though many have indicated in this research that they have such plans in place”.
When it comes to the professionalising of the industry experience seems to play second fiddle to education. The late Charles Pillai said that for financial planners to be regarded as professionals they must be members of a professional association that is devoted to public service and embraces a code of ethics.
Pushing the professional agenda
This association has to be recognised by the community members it serves and act as a spokesperson for the profession. Qualifications and setting standards on how the body of knowledge is applied must occur by way of oral or written examinations conducted by members of the profession.
Alarmingly many of the country’s experienced financial advisors do not have post-matric qualifications. "A staggering 92% of survey respondents have not furthered their education in their chosen careers,” notes Maree. "This will make it almost impossible for these advisors to call themselves professionals or enter the new professional era in the South African financial services industry”.
The Regulatory Examination is not considered a professional qualification and will not make financial advisors professional overnight.
Investing in education
"An investment in continuous learning pays off not only for financial advisors, but for their employers and individual investors,” concludes Maree. "For financial professionals, it is about positioning strategically for success. And for financial institutions and their clients, the return on investment is the integrity of the financial markets, improved industry reputation and consumer trust”.
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