Consumer education will play a significant role in addressing industry challenges
As we wind down towards the end of the year, one thing is certain: the South African financial services industry is going through uncertain times. However, the sustainability of the industry depends on stability and the industry is waiting with baited bre
This also needs to be managed during a time where the world is recovering from the recession caused by the 2009 global financial crisis where cash flow is significantly restricted and access to financial advice is in high demand.
In order for the industry to operate in a sustainable manner, while its regulatory framework is going through changes, the Financial Intermediaries Association (FIA) reports that independent financial advice is pivotal in improving access to financial products and addressing South Africa’s poor saving culture.
The industry needs a few heroes
Because of this, the pressures on South Africa’s finance and risk advisors is immense, and this important group finds itself at a cross roads in their careers with a defining moment on the horizon.
While many may look at these brokers and advisers with a measure of caution, not enough appreciation is given to the work that they are doing in under current circumstances. The FIA points out that this group is practicing at a time when the definition of intermediation and financial advice is under scrutiny, not only by industry watchdogs and regulatory bodies, but by other insurers and the public.
To complicate this, the Financial Services Board (FSB) are moving towards Retail Distribution Review (RDR) where fair remuneration will be changed forever after the publication of its RDR paper next month.
To clarify the air on some of the burning questions that advisers and brokers have, the FIA focused on these issues during their recently held Regional Conferences which were well attended. Addressing attendees at the Johannesburg conference, FIA CEO Justus van Pletzen said that this was an easy choice as the industry is very dynamic and is going through some significant changes.
Challenges around every corner
Traditionally, the mining industry has always been the cornerstone of the South African economy. However, this is not to say that the financial services industry is not a significant contributor. In fact, Van Pletzen points out that 17% of South Africa’s Gross Domestic Product is contributed by the industry.
This is important in the sense that the South African economy needs to accelerate its heavy dependence on the mining industry. However, this cannot continue at the desired pace while the foundations of the industry are built on shifting sands.
Jacques Coetzer, GM for Broker Distribution at Sanlam Personal Finance commented on this saying that profit margins are being squeezed by higher compliance costs and the need for advisers to spend more time on complex administrative tasks rather than selling is becoming an unwelcome reality. There is also the realistic danger that RDR will further dent the bottom line.
However, there is a light at the end of the tunnel if intermediaries are prepared to put customers at the centre of their business. “If you do right by your clients and form strong lasting relationships with them, then all stakeholders in the industry will benefit,” he says.
But, money makes the world go round and the key question that needs to be asked is: will advisers be able to serve their customers in the industry if their revenue comes under threat. Van Pletzen adds that there is a sad irony in the FSB’s efforts in that some of the moves which it is putting into place to protect customers could be detrimental to them.
Industry drivers
This may sound confusing when looked at on the surface, but if specific industry drivers prove to be correct…this possibility will become an unwelcome reality.
“Because independent financial advice is pivotal in improving access to financial products and services, by punitive actions to reduce intermediary remuneration – thereby impacting on the adviser’s ability to service existing and source new clients – should be carefully weighed up,” says Van Pletzen.
Regulation is another industry driver which can improve the industry, but can also restrict it. We are all aware of the impending implementation of Treating Customers Fairly, Solvency Assessment and Management (SAM) and RDR but we may not be fully aware of the extent of the FSB to regulate the industry. In opening the conference, Van Pletzen points out that there are no less than 38 pieces of legislation which are up in the air. South Africa’s financial services providers are among the most regulated in the world thanks to the Financial Adviser and Intermediary Services (FAIS) act of 2002 and its accompanying codes of conduct.
Despite this, there has been significant industry buy in. “FIA members have wholeheartedly supported recent industry regulatory interventions, including the requirement to take regulatory exams. And we remain committed to negotiated pro-consumer improvements to the legislative environment,” says Van Pletzen.
Van Pletzen is justified in saying that RDR will have a greater impact on the industry from an adviser’s point of view than TCF. An adviser that does not put the customer at the centre of their business will not prove to be a success in the industry.
But at the core of TCF is consumer education which requires consumers to be enlightened on the products and services that they are purchasing. There is no doubt that risk and financial advisers are very eager to fulfil this role.
Editor’s Thoughts:
Fostering good relationships with customers can only benefit the industry and will go a long way in making TCF a successful reality rather than an ambitious ideal. Do you feel that the challenges which currently restrict the industry will be easy to overcome? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts[email protected].
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