Where is the value for brokers?

FAnews spoke to Advocate Dube Tshidi, Executive Officer of the Financial Services Board, about its relationship with brokers and the value it creates in the intermediary space.

Advocate Tshidi, who holds a Higher Diploma in Labour Law, as well as B.Juris, LLB and LLM degrees, joined the Financial Services Board (FSB) in 1994 as a junior analyst in the Retirement Funds division. He served as Deputy Executive Officer in charge of Pensions for three years prior to his appointment as Deputy Executive Officer in Investment Institutions, responsible for the capital markets, collective investment schemes and market abuse areas.

In April 2008 he assumed the role of executive officer, bringing to the helm of the FSB an extensive knowledge of the work of the FSB across various areas within the organisation as well as a sound appreciation of the challenges going forward.

Held in high regard among industry players and other stakeholders, Advocate Tshidi is also a firm believer in the value the FSB brings to the industry.

Building confidence

“The regulator is not an ogre,” says Tshidi. “In the interest of consumers, we wish to work together with regulated institutions and financial services providers to make the South African financial services environment a well-functioning, reliable and better place for all South Africans wherein financial transactions can take place with confidence.”

Tshidi emphasizes that all consumers of financial services products require a measure of protection. “Consumers need to be able to trust their financial services providers. As Registrar, my actions in terms of FAIS are directed at achieving this goal. It is also important that the intermediaries who provide financial services to consumers are competent, knowledgeable and have integrity, hence the FAIS Fit and Proper requirements.

“Five years after the implementation of the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act), many financial intermediaries and advisors still ask why they need to be regulated and what advantages does it hold for them? In short, we are creating an environment in which brokers and advisers are competent, knowledgeable and trusted by their clients, which means that the bad apples are no longer around to fleece the consumer, and the compliant brokers and advisors are able to grow their businesses with confidence.”

Consumers first

Tshidi explains that the objectives of the Act are, firstly, the protection of the consumer and, secondly, the professionalisation of intermediaries and advisors. “Market conduct regulation, which is essentially what the FAIS Act constitutes, is in line with international regulatory practice.

“Furthermore, for at least three decades prior to the coming into operation of the Act, many dodgy so-called investment schemes caused untold losses to investors in general and to pensioners in particular. One of the well-known examples of such a scheme was Masterbond, which was placed into curatorship in the early nineties and which led to the appointment of the Nel Commission of Enquiry. The resultant report by Judge Nel, who was also in charge of investigating the Owen Wiggins collapse, raised many regulatory questions, the answers to which were incorporated in the FAIS Act.”

Qualification quandary

The greatest concern for many advisors is the prescribed qualification requirements. “It is not the aim of the FSB to set unachievable hurdles,” comments Tshidi. “The prescribed requirements, per financial product, are aimed at equipping intermediaries and advisors with the necessary knowledge, so they can offer their clients the appropriate guidance and advice. The same applies to the regulatory exams - similar to a licence to own a firearm or a driver’s licence, the holder ought to know the basic principles of the law involved.

“The qualification requirements and the level of the announced regulatory examinations are well intended, and were introduced because experience showed us that a large number of licensed financial services providers do not know the legal requirements that they operate under.”

Conflict of interest

Another current issue of concern among brokers is the requirements within the FSB’s General Code of Conduct that a financial services provider (FSP) to disclose to a client the existence of actual or potential conflicts of interest. Tshidi says the current one liner in the FAIS General Code of Conduct is insufficient and a new conflict of interest policy, which has taken some three years to finalise, is currently out for public consultation. “I believe that the implementation of the requirements contained therein will serve to eliminate confusions in this regard.”

Broker numbers

While the drop in the number of advisors is a reality, Tshidi says it is not a matter of great concern. “The license statistics show that the number of licenses issued after steadily reaching the current level, have remained constant. And whilst a number of licensees have voluntary lapsed their licenses, new license applications are still being received on a continuous basis. A number of lapses referred to probably reflect the difficult economic times which we have recently experienced. I estimate that we will be back to 14 500 active licensees, from the current 13 800, by the end of 2010.”

Challenges

While not an easy task, there certainly are some perks to his position of responsibility. “During my time at the FSB, I am continually inspired by the commitment that is demonstrated by the FSB staff to face head-on the challenges that come their way. This commitment will prevail as we face possibly our greatest challenge: the lack of drive to do what is right among some individuals in the various industries we regulate.”