Money advice needs soul
BLACK AMBITION: EXTENDED FAMILY ALWAYS PART OF THE PICTURE IN ‘NEW’ MIDDLE CLASS
South Africa’s emerging, black middle class comes with baggage – a lot of family baggage – and the investment industry had better take notice.
An emerging black middle class is resisting financial advice due to some “horror stories” where products were sold and the broker disappeared, a financial advisor claims. Speaking at a Liberty Media Roundtable about the Retail Distribution Review (RDR), Gerald Mwandiambira, CFP professional and acting CEO of the South African Savings Institute, said most customers had not had a good financial advice experience.
Sausage machine
He said for many years, the industry loved selling funeral policies. Some consumers have walked around with “bags of funeral policies” only to discover they only needed one when the insured died.
This is causing serious problems. Consumers are arguing that if they knew they didn’t need another funeral policy, but life insurance instead, they would have made a more informed choice.
He said the industry has to re-embrace the consumer.
“We can’t switch on RDR and say we’ve always been okay as an industry in terms of some companies abusing that opportunity to touch this new market. That is why this new market says ‘you guys come and sell and then disappear’,” Mwandiambira said.
“We need to have that first generation of black South Africans enjoying wealth creation: knowing what a heir is, what an inheritance is, what a usufruct is. We don’t have that experience because we are stuck on the funeral policies.”
The RDR proposals aim to make advice more affordable, accessible and fair to customers.
Mwandiambira said there also has to be an acknowledgement that South Africa’s demographics are unique.
The growing black middle class now includes six million South Africans, who are often also stretched in terms of their financial responsibility to an extended family (black taxes), he said.
Funeral policies are popular in South Africa for the simple reason that they are the only product addressing the key need of an extended family. RDR might lead to a new generation of products that cater for this growing middle class, including an extended family, he said.
Johan Minnie, group executive for sales, distribution and bancassurance at Liberty, said the objective of RDR is to deal with key risks that have arisen over time in the distribution landscape and have led to poor customer outcomes.
The proposals really address three issues: a lack of responsibility taken by product suppliers, a lack of transparency with respect to different services provided and the remuneration paid to intermediaries, he said.
Minnie said there is a notion that there is a disproportionate amount that is paid for certain services given to clients.
Client first
But it is really about putting the client in a position to make a rational decision about what he is getting in return for what he is paying, he said.
“If we get the right answers for these outcomes, the whole industry and the consumer will be better off.”