FAnews Online sent a newsletter on 14 June 2007 about the Section 14 debate. We received a number of comments from our valued readers and posted below are a few of the comments.
(To read the newsletter click here)
"Life is full of choices and consequences. Our value, as intermediaries, is helping clients understand the choices and consequences to make an informed decision.
I am deeply disappointed in the sideways move that Jonathan Dixon (National Treasury) has done regarding the method of payment for advice fees. He has now restricted the consumer from deciding which method is the most convenient method of payment for services rendered in regards to trail fees for transferred RA's.
It looks as if the LOA pressure has won after Treasury initially stood up for the client and intermediary, according to Business Report 3rd June, where he allowed the FAIS regulated MARKET PLACE to ensure appropriate advice and create competition amongst product providers.
This area lends itself to intermediary organisations to defend the consumer's rights. The latest Personal Finance 9th June front page article "Fee-driven advisors to be reined in" is missing an important participant. What is missing from the picture is the consumer!
The consumer's needs of receiving appropriate advice are also being reined in. Treasury has now decided that trail fees CANNOT be paid (at the client bequest) to the advisor BY the product provider. However, it can be paid DIRECTLY to the advisor by the client.
There are consequences which Treasury has not thought through. No one has given a thought of the extra costs involved in such an arrangement should the client choose to receive ongoing support and advice on her retirement portfolio.
The advisor must now have:
1. A system in place that values the portfolios monthly
2. That calculates the trail fee
3. That raises an invoice
4. That communicates this to the client with postage costs
5. That follows up fee collection, alternately has a debit order in place
6. Any debit order in place will directly raise clients cost of bank fees
7. Advisors will in turn raise their cost to administer retirement funds under administration to maybe 100% more (say1%)
The consequences to the consumer of this restrictive and costly payment method are:
1. Less interest by advisors in servicing the vital needs of assuring an appropriate retirement portfolio for the next 30 years of working or retirement life, should the intermediary not have the expensive admin infrastructure systems.
2. Less competition amongst product provider which was the direct cause for high product costs and hence the legislation for transferability.
3. Undermining the advisors credibility in the publics eye (personified as a raging bull) thereby further shrinking the attraction of new blood to this critical industry (average age 55)
4. Undermining the credibility of FAIS legislation and the regulator as ineffective and incompetent.
5. Undermining a cost effective remuneration method of payment that aligned client and advisor interests.
The only winner is the LOA who will continue to earn high fees on trapped, old retirement products due to the removal of competition by creating intermediary remuneration restrictions on transferability. The alternative is direct trail fees, which may be increased by 100% to cover the expensive collection method. This does nothing positive for the consumer or her retirement funds.
My question for intermediary groups is: Will the intermediary groups stand up for the consumer? -And fight for her right to:
1. CHOOSE the method on how to remunerate the advisor of her choice (direct or via the product provider)
2. By allowing FAIS regulated advice to flourish without further legislative restrictions on clients
3. Thus stimulating competition amongst product providers and driving costs down
4. By a method that aligns the interests of the consumer and advisor (trail fees)
5. Which is cost effective and convenient for the consumer
Cost effective and convenient trail fees empower the client to demand good advice and service. It also ensures the advisors interests are aligned. Anything less will undermine a positive win-win situation.
Finally, why does the LOA not upgrade their old RA/Annuity products to the new LISP specifications and become part of the solution?"
Author: FAnews Online Reader
"In the first instance, National Treasury and the FSB have set up legislation i.e. the FAIS Act that they are actually not competent to administer. The LOA are aware of this, and are exploiting the situation for all they think its worth to them.
The result is that intermediaries are being treated like criminals without a trial.
Surely the matter of a trail fee should be between the client and the financial adviser? A trail fee is discretionary i.e. a client can cancel this fee if he/she feels the intermediary is not providing regular follow up.
Take the case of Sanlam refusing to allow transfers to Allan Gray, without Allan Gray agreeing not to let the intermediary have any trail fees. Allan Gray has, quite understandably, told Sanlam to go and get stuffed with that idea. So what does an intermediary do? If a client is genuinely dissatisfied with an assurance company, the intermediary effects the transfer without a trail fee to begin with, just to let the transfer proceed without any hassles from the transferring fund. The client and intermediary can agree to a trail fee after the fact.
A lot of my clients absolutely hate assurance companies. They prefer to deal with independent fund managers like Allan Gray, who dont have shareholders diving into the returns on their investments.
Now that a lot of assurance companies are losing a lot of business to fund managers like Allan Gray, they are trying to screw the intermediaries over to fall into line. Unfortunately its too late for that over-used tactic to work anymore.
I dont mean all assurance companies. Companies like Altrisk and Momentum are quite pleasant and professional to deal with. Its the old dinosaurs that are causing chaos in their own, self-inflicted death throes.
You are welcome to publish this comment in an open letter to the FSB and LOA if you like."
Author: FAnews Online Reader
"The legislation ignores the whole financial planning process, assumes the absence of due process and assumes that IFA's are guilty, across the board, of advising clients for one reason, that being the generation of trail fees
No consideration as to whether a client with a long term investment time horizon is better off in e.g. Allan Gray Balanced or Coronation Market Plus as compared with an Old Mutual Smoothed Bonus portfolio, which, to my knowledge, has expenses which are greater than the TER with the above funds within Fairbairns Frontiers product.
I have an exact case in point where a client has moved to the above two portfolios after he turned 55 and has , over the past two years had fantastic returns and is happy to pay my trail fees on the investment.(This was a maturity and not a mid-stream switch although the principle is not dissimilar). He (my client) is infinitely better off than with his old policy and is happy to assume the additional risk now in spite of my having told him that the markets are at the upper end of fair value.
Bruce Camerons article about this in the Personal Finance and his reference to unethical advisers or words to that effect was a bit broadly framed although he is not incorrect in stating that such unethical brokers would certainly climb in on the bandwagon.
Unfortunately, in my experience, clients are not happy to pay a manual fee in respect of this sort of investment and the practical admin difficulties with monitoring and implementing such fees does mean that introducing such a practise does not appeal to many advisers that I know. As a result, I believe that clients will not have easy access to the (possibly) more appropriate funding medium.
I believe that the introduction of a comprehensive replacement questionnaire would go a long way to protecting clients against the cockroaches of the industry and make more readily available a more appropriate form of investment AND advice. That would be coupled with the payment of a trail fee to the adviser."
Author: FAnews Online Reader
Should you wish to comment please feel free to e-mail gareth@fanews.co.za.
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