FIA

There are many pressing issues for financial intermediary representative bodies to tackle through 2012. FAnews spent some time with Justus van Pletzen, CEO of the Financial Intermediaries Association (FIA) to find out which initiatives enjoy priority. The first issue he touched on was the importance of education and training in reaching the overarching goal of professionalism in the industry. Thanks to various representations made by the FIA through 2011 the Financial Services Board (FSB) shifted the deadline for Level I Regulatory Exams (RE) to the middle of next year. “The industry has achieved a great deal through the exams and we believe the bulk of FIA members have already sat the exam,” said Van Pletzen. “We are calling on our members to get the exam behind them as early in the New Year as possible, so that they can focus on business through 2012.”

RE Level II has been postponed for the time being but remains firmly on the agenda. The FSB is in the process of preparing these exams as well as making sure that the required exemptions are correctly assessed and granted. Van Pletzen said that the FIA and industry stakeholders would have to work together to ensure that the teething troubles experienced with the Level I RE implementation are not repeated. “We believe that Level II, once implemented, will run a lot smoother,” he said. Success will hinge on the ongoing involvement of the FSB, INSETA and various intermediary bodies as well as on “buy in” from individual financial services practitioners.

Regulatory focus shifts to the insurers

Over the next three years the Treating Customers Fairly (TCF) initiative will dominate the market conduct segment of the South African financial services industry. “TCF is a positive move and the FIA together with all other industry bodies are serving on the FSB Steering Committee driven by Leanne Jackson,” said Van Pletzen. Seven working groups have been established to focus on the six outcomes of the proposed regulation. The challenge will be for the industry to come up with a practical and acceptable format for implementation from early 2014. Stakeholders will have to iron out any overlaps and contradictions between TCF and existing legislation such as the Consumer Protection Act, Long and Short Term Insurance Acts, FAIS Act and Medical Schemes Act among others.

The financial services industry has come under increasing legislative and compliance pressure in recent years. It is estimated there were 454 new Acts, bills, regulations, codes, circulars, directives and standards which impacted just the insurance sector through 2010… Add to this the rules and regulations applicable to other sub-sectors of the industry, and consider general business legislation such as the new Companies Act, and the impact of red tape on businesses in the industry becomes painfully obvious. “It is increasingly difficult for the small financial practice to keep up with and comply with new legislation,” admitted Van Pletzen. But he welcomed the apparent shift from adviser to product provider introduced in TCF.

The new legislation will force companies and their chief executives to take greater responsibility for their products. “Intermediaries are not excluded from TCF – because advice is one of the six outcomes – but there is more focus on all stages of the product lifecycle from design to sales and marketing and the claims and after-sales stages too,” he said. TCF will instil a new culture of responsibility among stakeholders across the industry.

The future of independent financial advice

Over the past decade the regulatory microscope has been turned on those at the forefront of financial advice – most notably the independent financial adviser. Although new legislation such as TCF and Solvency Assessment and Management (SAM) will shift focus from the adviser to the product provider over time there is no doubt the cost of compliance in the adviser space is multiples of what it was 10 years ago. “The cost of the administration and compliance burden placed on intermediaries has probably increased fourfold over that period,” said Van Pletzen. Independent financial advisers are dipping into their wallets to pay membership fees to associations and professional bodies, compliance officers, for practice management support and annual licensing fees to the FSB. Smaller practices are finding it more difficult to survive financially than ever before!

It comes as no surprise that the number of genuine independent advisers plying their trade in South Africa is in decline. Smaller practices are merging or acquiring their competitors in order to gain the critical mass required to trade profitably. A larger business can absorb compliance costs and negotiate better deals with product providers. Van Pletzen estimated the number of financial services providers licensed by the FSB has probably declined from around 14, 600 in 2005 to around 12, 000 today. And these numbers will decline further due to the high average age in the industry (currently above 50 years) and as those who fail to complete RE bow out of the industry.

“A number of independent advisers will doubtless migrate to the tied agency force,” concluded Van Pletzen. “Some will give up as compliance and education demands mount. But for the thousands who choose to remain independent there will be numerous opportunities.”

Editor’s thoughts: In recent weeks we’ve heard from a number of readers who are unhappy with the increased burden of FSB levies on their practices… Intermediaries, already under pressure due to tough economic conditions, are struggling to find the extra cash to meet all of their legal obligations. Are you comfortable with the cost of legislative and administrative compliance in your practice? Please send your comment to gareth@fanews.co.za