This is just crazy!

This is just crazy!

Imagine going to see a new doctor/dentist/lawyer/accountant for the first time and before she consults with you she pulls out a multiple page document which she proceeds to go through with you. The document tells you all about her and details why she can do what she is doing. Sound outrageous? That’s because it is!

The letters behind her name are an explicit indication that she has put in the hours to obtain her professional qualification, does the required continuing education and is therefore suitably qualified to do her job. And yet each time we, as Certified Financial Planners®, see a new client we are obliged by law, to go through just such a document. Why? Because unfortunately, just about anyone acting in an advisory role in this country is able to refer to themselves as a financial planner. While the CFP® designation is internationally recognised as the pinnacle qualification for financial planning, in South Africa, it is not a pre-requisite for you to be referred to as a financial planner. Any Tom, Dick or Harry can refer to themselves as a financial planner and as a result I need to go through the disclosure document with each new client. And each time I am reminded that we are not regarded as professionals and I lament the opportunities that the FSB (and some industry bodies) missed to really clean up the industry.

Traditionally, the blame (for poor ethics and standards) appears to have been laid almost solely at the door of the financial advisors who have been “fleecing” the unsuspecting consumers. It is my opinion that the companies that have been marketing and accepting the business also played a significant role in the “fleecing” and the resulting need for all the current industry legislation. The companies argued that it was not their responsibility to “police” the industry and that they should not have been performing the legislators function. They do, however, in my opinion have an inalienable moral and legal responsibility not accept business from D.Odgy Brokers Ltd or to offer products and solutions which essentially constitute bad practices.

Sadly, the structure of most of the financial service providers is such that they are fundamentally dependent on new sales in order to grow their business and as a result it often appears that it has been business at any cost. There is a perception that because of this pressure to generate profit that if Company A won’t accept the business then Company B or C will, so Company A will take it (this time) even if it is “bad business”. Not only should they be held responsible for accepting “dodgy” business, but I think that companies should also be held responsible for the products they have brought (and bring) to the market – many of which have often been within the letter but not the spirit of the law. This has often resulted in the (ad-hoc) intervention by the financial authorities (remember the “black hole” policies to name one).

So in 2004 we saw the introduction of the FAIS Act (Financial Advisory and Intermediary Services Act) which was supposed to deal with all the bad advice that consumers have been subjected to over the years. My response to FAIS has been twofold. Firstly, the introduction of legislation does not (and never will) change the seriousness of what we do – clients don’t get a second chance to retire or become disabled – what we do has always been very serious business and should be done correctly first time around (with or without legislation). FAIS does not change that but it does, however, now bring a (financial) consequence for poor or inappropriate advice, and this is good. My second response is a bit more cynical. To me, FAIS is like putting a bucket under a leaky tap. You don’t do that, you fix the tap.

To expand on the analogy, I think we all accept that there has been a “leak” in the financial advice arena and consumers are the ones that have paid the price. However, the legislation appears to be largely targeted at advisors (and there are apparently more than 100000 of us in SA) when it could have been far simpler to fix the tap by targeting (far fewer) financial service companies. Without a steady supply of product, sales people (brokers) have nothing to sell so by regulating what companies can market (and who they can use to market), it would have been far simpler and quicker to clean up the industry.

But for some reason, the FSB decided to legislate 100000 individuals when they could have more effectively legislated a couple of hundred companies who already had compliance departments in place. Imagine if they had said to a company like Old Mutual – “you are responsible for the products you offer and the business you accept – if it does not comply with the legislation, we will suspend your license to do business”. I am pretty sure that they would have cleaned up their act very quickly and this would probably also have resulted in a more honest and professional industry much more quickly.

At the same time, the FSB could have insisted that only someone with the CFP® designation could be referred to as a Financial Planner – this would have also gone a long way to creating a profession and clearing up the confusion around financial planning and would have also encouraged many more advisors to aim for the CFP® mark. It would probably also have meant that we would not need to go through a disclosure document each time we see a new client – the profession and letters behind our names would say it all!