Later this year, if all goes according to plan, anyone who gives financial advice to clients, or attempts to sell financial products, will have to be licensed by the authorities.
Advisers will receive a licence only if they have the required qualification and minimum years' experience to sell the particular product or service. The level of qualification or length of experience will depend on the sophistication of the product. For instance, an intermediary selling a funeral policy must have a year's experience and a "relevant" Insurance Sector Education & Training Authority (Inseta) learnership. A person giving advice on foreign currency-denominated investments will need three years' experience and a matric, or one year's experience and a "relevant" business degree.
Having the licence also means the intermediary officially subscribes to a code of conduct and is financially sound. Any unlicensed adviser who tries to sell a life insurance policy, or puts together an investment plan for a client, is operating illegally.
In terms of the new code of conduct, advisers will not be allowed to receive noncash incentives, such as overseas trips, thought to often be the main motivation behind advice given to clients, says Gerry Anderson, deputy executive officer of Financial Advisers & Intermediaries Services (FAIS) at the Financial Services Board (FSB). The only incentives advisers will be allowed to receive in future are commissions.
The finer details of these standards of practice are being thrashed out by the FSB advisory committee and the financial services industry.
They are attempting to come up with fit and proper guidelines, a key aspect of the subordinate legislation allowing the main principles of the Financial Advisers & Intermediaries Services Act to be put into practice.
The FAIS Act is designed to ensure all brokers that sell life insurance products, or operate independently, are professional, honest and accountable for the advice they give to clients.
The FSB expects FAIS legislation to be fully implemented by the end of March and thereafter the FSB will call on recognised industry bodies to help process the 20 000 expected applications.
It hasn't been a smooth process and there's criticism the fit and proper guidelines could be too focused on the product providers, rather than the entire financial planning industry.
Financial Planning Institute (FPI) vice-president Andrew Bradley is concerned that the fit and proper guidelines focus on categorising products rather than looking at the advice given to clients.
He believes it is an impossible task to categorise products as they are constantly evolving. There are also a number of products not on the list, which takes them out of the ambit of the FSB, a "ludicrous situation" in Bradley's view. The regulations will therefore govern only product pushers, he says, rather than setting minimum standards and putting in place structures for the entire financial planning process and advice given to clients.
He doesn't have a problem with the FAIS Act as an overarching piece of legislation, but does take issue with the way the subordinate legislation has been put in. "As the regulations stand, there is no sanction against anyone giving clients patently bad advice if they do not sell the product."
He believes the product providers have too much influence on the advisory committee, which ultimately decides what the subordinate legislation will be, and that it doesn't have enough financial planning expertise.
Anderson disagrees. He says the members of the advisory committee were appointed by the minister of finance and he is confident that many of the important sectors of the financial services industry are adequately represented. "If it (the committee) had to represent everyone, there would be 30 people."
Anderson says the FPI has been offered the opportunity to make representations through the FSB to the committee, and believes the bulk of intermediaries are represented by the SA Financial Services Intermediaries Association (Safsia) and the Financial Intermediaries Federation of SA (Fifsa).
Anderson adds: "It is expected that the largest number of licences issued are going to be to intermediaries in the insurance industry. Independent financial planners who are not also involved at the same time selling insurance products are going to comprise 3%-5% of the total licences issued."
Bradley says the FPI doesn't represent only financial planners; it represents anyone in the financial planning profession who gives advice to clients. There are more than 7 000 FPI members, 4 000 of whom come from the large corporates and insurers.
Anderson emphasises that there has been continuous discussions with the FPI and that the institute has played an important role in assisting the FSB in refining the fit and proper criteria.
Bradley believes it is vital that financial planning is identified as a fundamental and critical process, of which products may be a part. He says: "I'm worried that legislation focuses on the product and ignores the advice that it is a critical component of the process. This will put the industry back 10 years. Those days are over. We need to give people proper advice."
He says the FSB needs to acknowledge the financial planning profession.
Bradley is also concerned that the FSB does not specifically recognise the Certified Financial Planning (CFP) designation that is given after extensive education, examination, experience and ethical requirements have been met. This designation is a globally recognised mark of excellence in the financial planning profession.
Anderson says: "I told all industry representatives that it was not the FSB's role to evaluate qualifications. I saw what a minefield it would be and asked industry players to take their courses to the SA Qualifications Authority (SAQA), the official body for the necessary accreditation."
He says as far as he is aware, the FPI has taken the course to SAQA and it has been accredited.
Bradley questions why the international Certified Financial Analyst (CFA) qualification is specifically recognised and the CFP is not. Anderson responds that 450 of the 20 000 intermediaries expected to apply for FAIS licences are already regulated as investment managers and many have CFAs.
"We have recognised the CFA in the past and can't change that," Anderson says.
Sharon Wood
