It is time for brokers to speak with one voice...
On Wednesday, 12 September 2012, a group of eight brokers settled down over breakfast for a proactive solution-driven discussion about the financial services industry “issues” that most affect them. The event was the first in a series of FAnews Thought Le
Instead of criticising the product providers – mostly insurers in this case due to the attendees being predominantly in the risk space – the spotlight immediately fell on broker representative bodies and the regulators. Among the main concerns is that the regulator is intervening excessively by way of often ill-thought rules and regulations, while the industry bodies are not doing enough to communicate their members’ needs and concerns to the regulator.
Think (or listen) before you regulate
An overriding concern that emerged during the two-hour long discussion was that the consequences of regulation were often overlooked by the regulator. The attendees were divided as to whether this flaw stemmed from regulatory arrogance, the failure of broker representative bodies to communicate their concerns to the regulator, or both. Whatever the case it seems the Financial Service Board (FSB) did more damage than good by its last minute concessions on matters relating to the RE implementation, for example.
Each of the brokers seated at the table with me agreed that RE was a welcome step towards professionalism in the industry… But they spoke with one voice when discussing its negative long-term impact on the industry. What happens, they asked, when the FSB debars the 10000-plus representatives who do not comply with the RE requirement? One possible consequence is that the FSB will have to hike fees significantly to make up for a sudden dent in its income. Another fear is that the expected debarments will impact negatively on the already poor inroads the industry has made in transforming itself. In short: RE was a great idea, but its implementation could do as much damage as good.
Many brokers believe that the regulatory whirlwind is a consequence of a regulatory machine that has grown too rapidly… It churns out regulation without taking care to distinguish between sensible business practice (operational self-regulation if you will) and harmful practice. Winding the clock forward 10 years we wondered which of the recent regulatory “innovations” would be blamed for the demise of the independent broker. With each new regulation somebody is either being prevented from joining the industry (as education standards are raised) or pushed out (as both the financial and time implications associated with compliance skyrocket)!
A plea for positive broker and adviser “spin”
Among the issues raised at the breakfast is that the general public is unaware of the role and function of a broker. The consumers’ negative perceptions around brokers and advisers stem from the “big money” marketing campaigns of the country’s direct insurance operators. These advertisements have tarnished the brokers’ image and elevate the unqualified telesales agent.
The resulting price-based, broker-bashing view of insurance is more damaging to the consumer than the handful of unethical brokers out there. It is the broker and not the telesales agent that conducts a thorough needs analysis to implement a value-based solution that satisfies regulatory requirements. Yet brokers are in the regulators cross hairs while telesales agents are not. Brokers want assurances that the guys “selling” insurance over the phone have the same qualifications and regulatory supervision as those selling insurance at the front line.
A great deal of time was spent debating what brokers could do to improve their image. I posed the question whether the recent marketing campaigns of large short-term insurers Santam and Mutual & Federal would do the trick… But the consensus around the table was that these advertisements, although positive, were still too brand focused. It soon became clear that brokers would not be able to rely on insurers to carry the pro-broker message.
Speaking with one voice
The only way for brokers to tackle issues around image and perceived unfair regulation is to speak with one voice. Nobody at the table cared who this “body” was, though they indicated there was more sense in having a single strong representative body rather than many fractured bodies. Ironically, when a breakaway body formed to tackle the FSB on RE, the dominant broker representative body stood firm with the regulator to see off the “attack”.
Brokers want a representative body that not only communicates their concerns to the regulator but takes up the fight if there are injustices in the solutions the regulator subsequently carves out. It is unacceptable, for example, that legislation can be prepared – as was recently the case with the Insurance Laws Amendments Act (and its Binder Regulations) – where entire sectors of the industry are totally excluded. It was as if the FSB forgot that UMAs existed! And the industry now sits with a set of regulations that will cause untold hardship for industry stakeholders going forward.
An important realisation is that brokers need to take a greater interest in the industry. If you are unhappy with a direct insurer’s marketing campaign then voice your concerns – if you are worried about pending regulation then make sure that you contact you representative organisation – and raise your concerns directly with the regulator too. Finally – if you feel that the broker image is insufficiently marketed, lobby your product provider and representative body to do more!
Editor’s thoughts: Attendees at the inaugural FAnews Thought Leadership Breakfast (held at the Hollard Campus in Parktown) felt that the professional standards and Code of Ethics adopted by the FPI would eventually have to extend beyond the financial planning space. Can short-term and risk-only brokers aspire to the CPF® or similar qualification? Please add your comment below, or send it to [email protected]
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