Thursday, 8 September dawned bright and sunny … a perfect day for gathering at Kyalami’s Theatre on the Track and networking with member Financial Advisors of the Financial Planning profession, and to be encouraged and challenged by presentations by members of this fraternity. And this is precisely what members of Masthead, the Advisor’s Advisor, did, and with great success. The meeting also offered the opportunity for participating product and service providers to interact with the Masthead members. The presentations were also a chance for these providers to showcase innovations in their products and services that will allow advisors better to serve their clients.
Managing Director, Ian Middleton, was the opening speaker and set the tone by identifying challenges facing financial planners, but also encouraged his audience to meet these head-on. His presentation was entitled: Securing stability and extinguishing IFA doubt.
Ian acknowledged that the very title of his speech implied that there is a fair amount of uncertainty; however, we cannot ignore the challenges faced by the advisor, potential clients, and securing customer lifestyles. How do we adapt to these challenges and how can our business models help us to do so? These challenges can be distilled into two categories:
1. Time and money – we are all finding that it is taking more time to do the daily tasks; research in the UK shows that one day devoted to customers requires three days to complete the necessary administration.
2. Regulation – there is going to be more regulation, as regulators are looking to revamp the entire regulatory environment. The banking regulator will be focusing on prudential regulation, and the FSB will be concentrating on consumer protection. Also, there will be a review of advisory models, considering the issue of commission. Masthead does not believe that commission will be eliminated, but does recognise that the term ‘commission’ may have a whole lot of connotations that make the authorities cautious. So, that there will be debate is a given.
It is clear that we have to align regulation to international standards, in order to attract foreign direct investment. Thus, not all challenges on the regulatory front are negative.
Ian reminded his audience that the primary task of the broker is to protect the lifestyles of his/her client, giving peace of mind (this in the context of a South African society that is largely underinsured, under-provided for – South Africans are notoriously poor savers and start far too late with making provision for their retirement). Also, consumers face an information overload … with the result that they become paralysed – just consider how many unit trusts there are in South Africa! The consumers’ options are: go direct, go to a broker, or do it themselves. Creating your own financial plan by going direct is an insurmountable hurdle: to test this, simply google life insurance or personal finance (Ian cites the results as 72 400 000 and 78 700 000 respectively). In contrast, the advisor’s role is to assist his/her client first to identify his/her needs and then to create a plan to meet them.
Ian also tackled the perennial issue of cost versus value of advice. There is undoubtedly too much emphasis on cost, which is easier to quantify, obviously, than the value of advice. It seems that the worth of a good financial plan is recognised when a real need is felt: a medical emergency or the need for education fees. Cost is so often overplayed and value underplayed. Ian made reference to a South African study which showed, firstly, how poorly South Africans make provision for their financial needs, and, secondly, how much better prepared those who have financial planners are.
The notion that consumers are not happy to pay for advice is erroneous, according to Ian, based on the findings of another survey. Often, it is the advisors themselves who undervalue the service they provide. Ian asserted that current advisor remuneration, given what advisors are required to do, is not regarded as excessive and is in line with market forces.
Masthead is about the survival of the independent broker in business, and to assist the advisor to be successful. In this regard, Masthead chooses to be constructive, rather than confrontational, in engaging with regulators, particularly National Treasury, the FSB and the FAIS Ombud. Masthead helps by giving these regulators insight into the sector and engages in discussion with them, and this at least once a quarter, face-to-face.
In terms of assisting its members, Masthead has devised two approaches in anticipation of and responding to change: firstly, there is the network it has created to support those who want to go on their own; secondly, Masthead has launched a Dealer Group, a single entity which has an FSP licence (one Masthead master licence) to accommodate those who would rather operate within this context.
In conclusion, Ian reasserted that we cannot escape the challenges that come with the financial planning profession, but assured members that Masthead is there to assist them face these. From a consumer perspective, advisors provide huge value – this is something we must embrace and communicate with confidence. We can also predict and adapt to change, since we already know the direction the regulators are taking in our industry.
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