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The cost of “Toeing the Line”

01 November 2012 Paul Kruger, Moonstone Information Refinery

Website Wikipedia.org says that “toeing the line” is an idiomatic expression meaning to conform to a set of rules or standards. The recent study on the cost of compliance, undertaken by FAnews and The Institute of Practice Management, is the first attempt to quantify the cost to financial services providers (FSPs) of “toeing the line”.

It is difficult to balance the cost of compliance with benefits to advisors and consumers. While most compliance costs can be "measured” in terms of rand and cents, it’s not always possible to quantify consequences that may be detrimental to advisor and client alike.

The survey offers the following observations relating to costs:

• Regulatory compliance costs are ‘silent killers’ to independent financial advisors;
• The cost of advice is increasing and puts pressure on the affordability of advice;
• Financial Services Board (FSB) policies have unintended consequences that may not be beneficial to the consumer;
• It is increasingly difficult for independent financial advisors to put clients’ interests first due to shrinking profit margins;
• Costs will force independent advisors to become employees and move back into the corporate environment; and
• The demise of the "independence of advice” will not be in the interest of clients.

Cost to the intermediary

I will not address the cost of the regulatory examinations, but rather focus on those costs that will impact on the industry over the longer term. The first on-going cost is that associated with education and training, now an essential component of the FSP’s risk management plan.

Feedback from the industry reflects a growing frustration with the number of institutions queuing up to make money from the training requirements that intermediaries have to comply with. This problem goes back a long way.

In the good old days of skills credits, many an advisor burnt his or her fingers by attending fancy-sounding training, only to discover that the providers did not bother to have their courses SAQA approved. The "credits” obtained were either worthless or insufficient in terms of the number of credits required.

Obtaining a full qualification

Back then, few people actually bothered to read the FSB fine print which stated that an approved full qualification would eventually be the norm. Now that this is a reality, the gold rush is about to start again. And there are no prizes for guessing who is going to have to pay.

I recently received a call from a training service provider, asking how many continuous professional development (CPD) points his particular course would earn attendees. He was quite disgruntled when informed that CPD is still not on the map, and is unlikely to be soon. The very next day, the FSB published an exemption to the requirement to do CPD until further notice.

Too soon for CPD promises

I was at a conference in July where a number of training service providers had CPD built into their marketing material. Some even claimed to have been approved as providers by the FSB. Using CPD points to attract trainees, or as an excuse for raising fees, is immoral.

Where membership of a professional body requires that members up-skill themselves continuously, then only CPD points relevant to such membership can be gained. The relevant workshop content has to be verified by the professional body and any CPD points allocated by them.

Are you paying for value?

A few weeks ago I received an invitation to a one-day seminar on an important new piece of legislation. For R3500 they promise the following benefit: "Align your organisation with the different industry role players for improved business returns”.

I suspect that blatantly selling exposure to influential people will inflate the cost of financial seminars and sessions in the future, after all – where the politicians and regulators go, the business people are sure to follow.

How do you get "bang” for your education buck? Smart advisors should do their homework carefully before committing large sums of money to courses. Pay for education not "bells and whistles” or false CPD promises. The old adage still rings true: If you think training is expensive, consider the cost of ignorance.

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