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Stocktaking is vital

01 November 2013 Paul Kruger, Moonstone Information Refinery

The reaction to the recent approval of the e-toll system in Gauteng, reminded me of a similar sense of indignation a few years ago when the regulatory examinations were introduced.

Many developed a very keen interest in the number of candidates who wrote the exams, and how many not. One sensed that they were under the impression that, provided there was a strong enough boycott of the exams, it would be called off.

Gaining momentum

This interest appeared to be valid when, by the end of June 2011, only 15% of the candidates complied, and the FSB was forced to extend the deadline, or face having to shut down the majority of financial practices in the country.

A year later, this figure jumped to nearly 90%, and those who followed the boycott approach suddenly found that the trenches around them were empty. The industry had moved on, and they were left behind. Unlike those opposed to the toll roads, these rebels without a pause had no body like the Opposition to Urban Tolling Alliance (OUTA) to fight their cause.

Method to the madness

People are not irrational beings and there are a number of reasons why the majority of people in the industry did not immediately react to the regulatory examinations.
 
The first, and possibly main reason, is that the silent majority always intended to write the exams once they overcame their finely honed procrastination skills.

The second reason is that, once more information became available about the various examinations; candidates were able to develop and acquire the required preparation material, and complete the examination successfully. Statistics released by the FSB showed a steady monthly improvement in the success rate of candidates.

The examination bodies had their hands full to comply with the demand as news of the successes started to spread, and fear and trepidation dissipated.

The FSB made several allowances to accommodate those who had yet to write. Some of the die-hards eventually accepted the inevitable, and complied. By the end of July 2013, the pass rate exceeded 92% for both key individuals and representatives.

About 6% of all affected key individuals and sole proprietors opted not to enrol for the examinations.

The bigger picture

There are a number of bigger picture considerations that one should not lose sight of, both from the perspective of the regulator, the industry and the country as a whole.

The FSB is funded by levying the industry. A serious reduction in numbers would mean a substantial hike in levies, which could force more people out of the industry. This would be the start of a domino effect which would be difficult, if not impossible to stop.

Increased levies are but one of many additional rising costs facing financial advisers. UK experience shows that the cost of professional indemnity cover, for instance, skyrocketed as claims increased. The cost of compliance also takes a hefty chunk out of an advisory practice’s income.

New fit and proper requirements make it even more difficult to recruit and train new entrants, and retain them.

Futile battles

Financial products are, in the main, sold, and not bought. Without a strong distribution force able to fulfil this function, the government will find its battle against the decreasing saving trend of the nation a futile one. A decreasing financial services industry will also impact on the state’s coffers by reduced tax income to feed the present imbalance on social grants.

It is clear from the above that serious consideration should be given to where the industry is heading, particularly in terms of those in the distribution trenches.
 
The loss of experience and expertise will lead to a reduction in the quality of advice, and achieve exactly the opposite of why regulatory intervention was introduced: the protection of consumers.
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