Review welcomed as chance to clean up financial advisers’ image

THE financial services industry has come under great scrutiny for sales of unsuitable funeral and other financial products.

The South African Savings Institute’s acting CEO, certified financial planner Gerald Mwandiambira, said some advisers did not consider clients’ needs or the Administration of Estates Act, which helps them calculate what they need for funerals.

“You have people walking around with bags of funeral policies only to discover that they only needed one,” said Mwandiambira.

The Financial Services Board is to roll out the first phase of its retail distribution review next year. It is aimed at improving the quality of advice and customer service in the financial services industry.

The review “will deal with key risks that have arisen over time in the retail distribution industry”, said Johan Minnie, group executive in charge of sales, distribution and bancassurance at Liberty.

“Those key risks are leading to poor customer outcomes.”

The review will look at a new way for financial services providers, and advisers affiliated with them, to conduct business when selling products or giving advice. It would tackle three issues in the industry, said Minnie.

First was lack of responsibility on the part of suppliers selling unsuitable products or giving wrong advice. Second was lack of transparency in different services and who provides and monitors those services — as well as transparency concerns when it comes to services clients pay for.

Third was remuneration paid to agents or advisers.

Mwandiambira said South Africa’s demographic was unique, “so wherever the retail distribution review and similar initiatives have been tried, there are specific metrics which are in favour of them in terms of the level of financial literacy and education”.

What determined the attitude of most clients towards advisers was a belief that, for instance, while they knew that a client needed only one funeral policy, they kept selling more of the same sort of product to a client.

In an industry in which financial advice came second to pushing products, the review might have to lead to a new generation of products catering for a growing middle class, including extended families, he said.

The review should also enable clients to determine beforehand whether they were prepared to pay for advice.

David Kop, a certified financial planner and head of advocacy and consumer affairs at the Financial Planning Institute, said the prospect of the review “is bringing to the fore that the real value you’re getting out of engaging a financial adviser is exactly that — the advice. That’s a service that should be paid for.”

The board is thinking of double-tiered licensing categories for financial advisers: a registered product supplier agent or a registered financial adviser. An adviser would not be able to be both.

The Financial Sector Regulation Bill, of which the review is a part, is before parliament. The board expects it will be approved in November and put into effect in January or April next year.

You have people walking around with bags of funeral policies