Jobs remain the missing piece in the financial inclusivity puzzle

Over the past decade-or-so governments, the private sector and regulatory authorities have become increasingly focused on the integration of environmental, social and governance (ESG) factors across their respective areas of influence. ESG is now top-of-mind at the board level of financial services firms, with terms such as ‘carbon neutral’; ‘financial inclusivity’; ‘inclusive growth’; and ‘net-zero’ liberally seeded into their external comms, whether these be annual financial statements aimed at shareholders or media statements intended for the public.

Regulators have ‘E’ and ‘S’ in their sights

Few would argue that environmental and social outcomes are within the remit of government, which has entire departments dedicated to these areas; but whether a financial services regulator should elevate “contributing towards the country’s goal of being carbon neutral by 2050” as part of its broad market conduct function is more subjective. 

In its recent ‘Statement on sustainable finance and programme of work’ publication, the Financial Sector Conduct Authority (FSCA) reinforced its ESG focus under a vision “to foster a fair, efficient and resilient financial system that supports inclusive and sustainable economic growth in South Africa”. 

The fact that the market conduct regulator has placed the ‘E’ and ‘S’ of ESG firmly in its crosshairs is not lost on the professional financial planner community, with many of the country’s financial advisers and planners trying to work out how to make their financial advice more accessible, affordable and inclusive. Unfortunately, they are making little headway in an environment blighted by high levels of unemployment and a formal sector where many income earners are struggling to keep the lights on, let alone engaging a financial advice partner. 

Day two of the recent Financial Planning Institute of Southern Africa (FPI) 2023 Convention featured an intense discussion on the need for local financial planning professionals, and the broader financial services sector, to do more to extend valued financial advice, and the social benefits that attach to that advice, to all citizens. The debate was informed by the latest Collective Insights publication titled: ‘Can SA make the great shift? Why financial planning needs to go holistic’. The quarterly publication is supported by the Gordon Institute of Business Science (GIBS) Responsible Finance Initiative; the CFA Society of SA; the FPI; ABSIP; and the Actuarial Society of SA. 

Financial advice for the masses

Nici Macdonald, CFP® and HOD: Certification and Standards at the FPI got the discussion started by asking how the industry could make financial advice accessible to all South Africans. Anne Cabot-Alletzhauser, Adjunct Faculty and Practice Director: Responsible Finance Initiative at GIBS Business School, was first to respond, saying that the industry’s ongoing failure to address inequality and poverty introduced the risk of political instability. “If we do not shift our attention to creating a financially stable middle class, our society will continue to be at risk,” she said, offering a potential solution of discerning between financial advice and financial planning. 

This redefinition of advice-type services could prove difficult given the legacy remuneration models that underpin current advisory practice business models. Gareth Collier CFP® and a director at Crue Invest, said that the first step was to distinguish between the profession, where financial advice and planning reside, and the product provider segment, where the focus is on product and service. Collier conceded that commission remained ‘the Elephant in the room’ before advocating for a ‘continued revenue for continued service’ model. He suggested that this model might alleviate the temptation among advisers to take decisions on a commission-driven, sales-oriented basis rather than follow sound advice and planning practices. 

Solving for an offshoot of the inclusivity conundrum

This writer has attended numerous presentations where industry stakeholders have wrestled with the financial inclusivity riddle. The glaring consistency across these presentations is that industry is only solving for a sub-set of society. Instead of broad financial inclusivity, their focus remains on ensuring that formally employed South Africans who fit into the low-, middle- or high-income categories benefit from advice. Per the latest Quarterly Labour Force Survey, published by Statistics South Africa, one-in-three job seekers remain unemployed, unable to put food on the table, let alone finding cash for insurance or investment. Hence the headline of today’s article: ‘Jobs remain the missing piece in the financial inclusivity puzzle’. 

The good news is that strides can be made in improving financial advice outcomes among the country’s 16.7 million employed people. Kobus Kleyn CFP®, who was passionate about extending holistic financial planning to all citizens, said that the solution started with attracting and retaining more young financial advisers to the profession. He suggested that financial services providers (FSPs) in both the advice and product realms introduce an internship programme for young advisers with relevant university degrees. “Interns should receive a salary over the first 12-24 months during which time they can receive supervised, on-the-job coaching and the soft skills needed for success,” he said. Without this, the 70% ‘failure rate’ of new entrants would remain. 

Google ‘The Great Piggy Bank Adventure’

Jackie Palframan CFP® agreed that attempts to promote the next generation of financial planners were hindered by in-force advisory practice business models. The challenge, she said, was in assisting new entrants to the financial advice profession to develop soft skills alongside their university degrees and technical qualifications. “We do not offer enough face-to-face, real-world advice experience before deploying graduates into the financial services sector,” she said. Palframan also challenged corporates to do more to educate the youth about finances through financial literacy programmes that could cascade across different age groups. 

Returning to the solution set, Cabot-Alletzhauser imagined a future where the current umbrella pension fund morphed into an umbrella-type employee benefits solution. “The financial services sector holds the social security solution for South Africa: we do not have a government fund, retirement funding is done through the private sector,” she said. The industry’s shortcoming is in not expanding this solution into areas like education; emergency savings; healthcare; housing and security. She added that the so-called two pots retirement reforms currently being pushed through by National Treasury was an inevitable response to “masses of poor people trying to [access] their pension funds” to pay for services that government was failing to provide. 

The panel was in broad agreement that financial advice and planning should start the moment someone receives their first income, and that the pension fund system was as good a place as any to make the first adviser-client contact. Imagine, for example, an environment where every pension fund goes beyond the obligatory ‘benefits consultant’ to giving fund members free access to a financial planner. As for the underserviced low-income segment, Kleyn proposed that the aforementioned financial planning internship model could be tweaked to plug the gap. He suggested that interns learn their trade working with low- and mid-income earners, and that part of the trade-off for their monthly salary should be offering community level financial advice and planning services. 

An inappropriate market segmentation

We close today’s opinion piece with Cabot-Alletzhauser’s. observation that the current market segregation that dominates South Africa’s financial planning discipline is inappropriate. “We have erred by marrying our compensation to wealth as opposed to marrying compensation to a service towards the common good,” she concluded. She added that over the longer, South Africa would benefit more from empowering people to be financially capable rather than simply encouraging them to save for retirement. 

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