‘Maintaining a balance’ is key
Regulation of the consumer end of the broker market started back in 2004 with the Financial Advisory and Intermediary Services Act (FAIS). The act benefits both consumers and brokers, while also presenting significant challenges for brokers in terms of compliance.
Arnold van der Linde, director at the Financial Intermediaries Association (FIA), says the broker community, as with many other markets, is going through a lot of change.
“Every piece of regulation comes with additional challenges. Since the implementation of FAIS some years ago there is a lot more maturity and professionalism in the industry. While the new round of regulation, in particular the Retail Distribution Review, is a concern, there are also opportunities.”
He says one of the major issues is that developing legislation such as the Retail Distribution Review takes time and it contributes to a climate of uncertainty in the industry.
As a consequence, longterm decision making is often put on hold while the industry addresses the challenges that it must overcome as it works to implement new regulation.
“The climate of uncertainty has made it difficult for investors to invest and it stifles innovation and progress, which is not good for consumers in the long run. This is particularly true among the larger players.”
He says product innovation in the insurance industry has, for many years, been positively influenced by the broker community as a result of their continuing face-to-face interactions with clients.
Moreover, the environment also allowed intermediaries to be remunerated for creating a product that delivered better outcomes for clients.
Schalk Malan, executive director at BrightRock, says the Retail Distribution Review will empower clients to make informed decisions through unbiased, ongoing advice.
“Forward-thinking industry players will actually enable compliance through product structures developed with the goal of enabling the best advice with solutions that precisely meet clients’ needs.
“Traditional, commoditised product providers will need to make a significant paradigm shift to achieve the transparency and facilitate the product flexibility supporting ongoing advice that the review aims to promote, as products designed for once-off sales will become increasingly unsustainable,” Malan says.
He says one of the ways the review will stimulate ongoing, unbiased advice is through the requirement that financial advisers will need to prioritise the disclosure of the source of their income, and any business affiliation that might influence their advice to their clients.
“Clients will be unlikely to support businesses that lack this transparency once it becomes an industry norm.”
He says it is also important for advisers to familiarise themselves with the review and the anticipated roll-out plan and seek input or advice from the relevant authorities.
“While the proposed review proposals favour advice fees over commission structures, all the involved stakeholders in this process recognise the complexity involved with the sale of long-term risk cover. It is going to be important to maintain a balance between sustainable remuneration structures and transparency.”