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The FSB wants to become the industry’s new best friend

02 September 2014 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

There have been some troubling comments from industry regulators and watchdogs which point to the fact that there are a number of issues within the industry which need to be worked on.

According to Caroline da Silva, Deputy Executive Officer for Financial Advisory and Intermediary Services (FAIS) at the Financial Services Board (FSB), the regulator does not only have the best interest of the customer at heart, it also has a role to play in helping the industry improve itself in order to become a world class products and services industry.

Lending a helping hand

“It is true that the FSB does have a primary responsibility to make sure that products and services provided by the financial services industry are relevant. However, we also need to engage with insurers. As the FSB, we can lend a helping hand and although we may be intrusive, it must not be viewed in a negative way,” says Da Silva.

At a recent event, participants painted a troubling but honest picture of the industry saying that the reason behind a lot of FAIS Ombud determinations is poor industry record keeping. This was vindicated by a number of responses received from readers following the publication of a newsletter in which individuals pointed out that if one was to take the record of advice (ROA) from 12 different intermediaries and compare them, none of them will be the same.

“This is one of the problems we need to look at. We need to work towards wholesale industry compliance, and record keeping plays an important role in this. As part of our duty as the market conduct regulator, we need to engage with insurers on their record keeping,” says Da Silva.

It seems like there are no industry standards when it comes to the ROA. This is a problem as every intermediary needs to do a financial needs analysis before advising on the best product. If there was a standard document, the FSB’s future role would be easier. However, Da Silva points out that standardising the ROA will be hard to achieve.

Are we aware of industry risks?

Another concern being raised is the ability of insurers to identify and mitigate risks. Every client is a potential risk and because of the open door policy of the industry Ombudsmen, clients have more than enough avenues to seek redress.

“As soon as we accept change, we can see it works for us. There are many actions within the industry that do expose insurers to risk. We need to identify these actions and help insurers reduce their risk. By doing this, compliance is achieved and the industry continues with its professional development,” says Da Silva.

“Insurers currently have a mixed bag when it comes to governance and risk management. Some have two lines of defence in the business, while others lean towards the FSB as the first line of defence. This needs to be streamlined,” says Da Silva.

She adds that despite all the rules, there are too many examples of poor customer outcomes. “We need to be focused on the future and anticipate possible failures. We need to be proactive as well as outcome and risk based. Insurers need to be comprehensive and consistent.”

Allow the FSB into your company in order for them to understand your risks. “The engagement with insurers needs to be intensive and intrusive and not aggressive and hostile,” says Da Silva.

No white paper to be found

The industry has been waiting in anticipation for the FSB to release the White Paper on the Retail Distribution Review (RDR). It was promised in July but was delayed and postponed to August, which has now also been delayed.

“The major aspect that RDR wants to achieve is to eliminate conflict of interest. Intermediaries work in the best interest for clients. However, they get paid by insurers. This is something that needs to be looked at,” says Da Silva.

All intermediaries have a fiduciary duty; this means that an intermediary has a duty to work in the best interest of the insurer that provides them with the tools that allows them to do their job. They also have a duty to offer the best product to the client. There is a fine line as to which party deserves the intermediary’s primary duty, but the FSB is working hard to make sure that there is no grey area in this aspect; the client must always come first.

There is also a trend in the industry which lures independent financial advisers (IFA) to become semi-tied to insurers by being offered significant financial remuneration to disregard selling other products. This is a situation that faced debarred IFA James Stern.

“The FSB and the Financial Intermediaries Association of Southern Africa (FIA) have always highlighted the importance of independent advice. This cannot be achieved if we have intermediaries being tempted by insurers in this way,” says Da Silva. She points out that the FSB is working towards stopping this practice in the industry.

The FSB has been consistent in their view that commission will not be banned. The purpose of RDR is to make sure that intermediaries are remunerated fairly. Speaking at a FIA event at the end of August, Da Silva highlighted this asking if it was fair that an intermediary that sees clients gets paid the same as a call centre agent that never sees clients. This is a major concern that needs to be addressed.

Editor’s Thoughts:
While there is a lot of change that needs to be made within the industry, Da Silva admits that the FSB needs to change. The old way in which the insurer approached compliance is aging and needs to become dynamic. Will the industry be willing to accept this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by John Field, 04 Sep 2014
FSB is going to become our new best friend.
I have pleasure in submitting my comments on the above subject.
I believe it is a move in the right direction for it is in the industries best interest to work with the FSB to have well regulated financial industries. It is important that engagement with Insurers must not be aggressive and hostile.
The following comments should be viewed as constructive and not as criticism to the FSB:

1. Best friends is a two way street and the FSB must also become the best friend of the Industry.
2. Listen to the members of the Industry as a friend and work together for effective regulations.
3. Timelines must be kept.
4. Industry should be viewed as customers of the FSB and “treated fairly” as per FSB guidelines.
5. Constructive support should be given to small and medium businesses.
6. FSB and Industry must work together to improve their image.
7. Name and shame should be for material and outstanding offences as excessive use reduces its effectiveness as a deterrent.
8. FSB should issue directives on how to interpret Rules and the Acts when requested to provide clarity to Industry.
9. Where possible avoid Curatorship applications which lead to losses, liquidations and accusations of impropriety.
10. Avoid protracted legal cases as Nash and Wyne Jones which casts shadows on the FSB’s image and effectiveness.
11. Legal costs should be provided by Treasury and not from Industry Fees.
12. FSB fees should stand up to scrutiny.
In conclusion, I am hopeful that the FSB obtains their goals and the Industry embraces the opportunity for a closer working relationship.

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Added by John, 03 Sep 2014
Marisa's comment is very relevant in this regard. Having 12 different ROA's looking different is obvious. If they were the same then the advice furnished is not based on the Client then; that stands to reason. 12 individuals will not be seeking the same thing or asking the same questions-people we are looking for compliance for compliance's sake; surely this is a wake up call to the FSB. The reality is is that this is not a perfect system; show me any system in the world that is and I will gladly eat my words. Also the FSB has also been painting advisers/brokers as unscrupulous in the past, in an indirect manner that is. Repeatedly hammering on about remuneration misses the point, it's the advice model that should be looked at. Paying people less and less each and every year whilst the cost of living/doing business increases threatens the very workforce you are scrutinising for the slightest shortcoming. There is a saying that "if you pay them peanuts, you will get monkeys"; and that is in all fields. If the FSB aligns itself with the established assurers keeping in mind that the adviser/broker also needs to be looked after in the long term then surely that is half the battle won.
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Added by Andre Stols, 03 Sep 2014
Since the advent of the FSB, we all became more professional in our jobs which I in fact thank the FSB for- However, I come across clients daily who's brokers still are not doing what is required by the FSB and I wonder how these ruthless brokers and their Compliance officers get away with that.
on the point of commission, I get commission fro Insurers, but still put the client's Interest first, so where is the conflict of Interest?
should this 100 year old model which has been working well, fall away, then brokers will eat each other alive in the quest to obtain business and some will work for 3 % commission, duly paid for by the client and the broker fraternity will disappear off the face of the earth- this is the part in my opinion that Caroline and the FSB should consider- if they want to go that way, they must set equally strong rules in setting minimum percentages that a Client MUST pay, in line with what is paid today, and there may be no broker charging less than that minimum, equalling the playing field.
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Added by Ayanda, 02 Sep 2014
It is a joy to have someone of Ms Da Silva's caliber with proper and real industry experience now working at the FSB for the first time in decades. Hopefully she will introduce more people who actually know how things work in the real world.
However, because brokers are paid by the insurer who provides the product that they recommend, does not automatically imply a conflict of interest. On the contrary, traditionally brokers came down hard on insurers who subsequently failed to service or pay their client's reasonable claims. All the complexities that followed the introduction of commission regulation four decades ago is what has given rise to "conflicts of interest".
Do away with commission regulation in favour of full disclosure and conflicts of interest will naturally start evaporating like the morning mist. Insurers and brokers themselves will see to this, as it always was before. Wait and see!
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Added by Marisa Groenewald, 02 Sep 2014
“Wholesale industry compliance” sounds the same as “tick box compliance” to me. The problem is that some advisors just do the ROA for compliance purposes. I view a ROA as an invaluable tool to re-confirm all the discussions, plans set out and the way forward. It also helps with succession planning should someone need take over your client portfolio. Guidance for new advisors to teach them report writing skills and key elements that need to be in a ROA can be considered, but having a standard form will be impractical. No two clients have the same needs or solution.
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