Defending the broker after an attack by the City Press

The South African financial services market is currently going through many changes. The majority of these pieces of regulation hope to change the way in which the public views brokers and interact with them in order to secure financial awareness.

A major role player in this is the medical scheme industry where brokers form a vital link between the public and medical scheme product providers. While their role in the industry is undeniably important, it recently came under fire in an article in the City Press on 8 September, an article which the Financial Intermediaries Association of Southern Africa (FIA) feels paints an untruthful and damaging view of the role of brokers in society.

Setting the record straight

FIA CEO Justus van Pletzen explains that there are a lot of concerns with the article and that brokers in the industry are a lot more responsible than they are being portrayed. “The negativity cast by this article on the conduct of medical scheme brokers is an affront to the many knowledgeable and hardworking men and women who are registered as brokers,” says Van Pletzen. He goes on to address some of the specific inaccuracies of the article.

The information reported by the City Press was given to the press by the Council of Medical Schemes when it launched its annual report earlier in September. The City Press reported that Dr Monwabisi Gantsho, Registrar of the CMS, said that broker costs have been steadily increasing every year, but the number of people recruited by these middlemen does not correlate with the millions paid to them.

“Healthcare intermediaries, whether they are brokers or agents, have been instrumental in the past in introducing clients to medical schemes. It is disingenuous to blame the lack of growth in medical scheme beneficiaries on brokers. The Registrar, and by extension staff in the office of the CMS, should appreciate that the issues impacting on growth of membership are more complex. Any factual study into this matter has identified cost and affordability as the biggest barrier to growth in scheme membership, not broker activity,” says Van Pletzen, who adds that it has further been acknowledged that commission paid to brokers are not one of the main drivers of healthcare costs.

The reality of the situation

To link the increase in broker remuneration to medical scheme membership is unfair on the role that brokers play in the industry and as Van Pletzen points out, demonstrates a poor grasp of the industry.

“Bear in mind that in real terms, broker fees actually decreased in the year under review, and when viewed against the overall increase in non-healthcare expenditure of 8.1%, the increase to broker fees is low. Moreover, when one takes into account the extent of the regulatory requirements brokers have to comply with (and the concomitant costs), it is unfortunate that a representative of the regulators’ office should undermine their credibility,” says Van Pletzen.

He adds that broker remuneration is not only a function of medical scheme membership because commissions should be reviewed, in line with inflation, on an annual basis. The 4% increase in broker fees as published in the 2012 annual report is not only below inflation but also significantly lower than the 9.6% increase the CMS granted itself by way of levies charged to medical schemes. “Brokers provide a valuable service to clients and given the current legislated fee structure it is difficult for many brokers to make profit. There is no legal responsibility for brokers to grow overall membership of medical schemes,” says Van Pletzen.

Missing the mark on broker reimbursement

The City Press added that according to the CMS annual report, schemes used more than R1.4 billion of members’ money to reimburse brokers for bringing them more clients.

“The claim that R1.4 billion was paid to brokers needs to be placed in context. Firstly, this sum amounts to only 1.2% of total contributions made to medical schemes. Secondly, this number is inflated to include service fees and other distribution costs paid by the medical schemes which are NOT broker fees.”

Van Pletzen adds that it is equally wrong to suggest that broker fees relate only to client acquisition. The role of a medical scheme broker, as outlined in the Medical Schemes Act (MSA), is twofold. Firstly, it is to introduce new members to a medical scheme and secondly, the broker must provide on-going services to the member. Most brokers spend a considerable amount of time supporting their clients to access medical scheme benefits for which clients pay significant monthly premiums.

Editor’s Thoughts:
There are a number of other issues which Van Pletzen dealt with in his criticism of the City Press article. It is evident that the role of the broker has changed significantly with the introduction of new regulation by the Financial Services Board (FSB). These pieces of regulation aim to improve communication between brokers and the core of their business: the client. Articles such as the one by the City Press works against these ideals and paints the broker in a bad light, which is very unfair. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughtsjonathan@fanews.co.za.