What’s in store for the South African Financial Services Industry?
Having come from the UK and experienced the effects of RDR first-hand, I am constantly asked by South African advisers, ‘what’s in store for the South African Financial Services Industry?’
Whilst I cannot say with any certainty what the future holds, history has a nasty habit of repeating itself. I joined the Financial Services Industry in the UK over 25 years ago. I am told that there were close to 360,000 financial advisers in the UK at that time. And now there are circa 18,000 active advisers. That’s correct – only around 5% of us left – a mere fraction! Whilst it wouldn’t be accurate to say the industry has totally collapsed, it has certainly reduced significantly in size and now the country is under-supplied with professional advisers to service the rising demand for specialist knowledge.
So what happened?
Firstly, the introduction of a series of professional exams called financial certificates. These are what advisers had to sit and pass in order to continue to give advice. And rightfully so. How can you call yourself a financial adviser when you know less than your clients? This caused the first wave of advisers to vanish overnight. Arguably, many of these advisers should never have been allowed into the industry in the first place. But when the only test in the early days was whether you could chew gum and spell your name simultaneously, it’s not surprising that the quality of advisers was so low.
Secondly, commission disclosure. I didn’t personally agree with this change to regulation. After all, does a lawyer have to tell you his salary? Does a car salesman have to tell you how much mark-up he makes on the sale of a car? Does a housebuilder have to disclose his profits? The answer is No! So why should a financial adviser? That said, it is only right, as with the lawyer, the car salesman and the housebuilder, that a client should know exactly what they are paying to buy a product or service. But this sent many more advisers running for the door. Arguably, these were maybe the ones who weren’t giving good value for money, or at least didn’t believe it.
Thirdly, the reduction in commissions on products, the removal and restriction of certain products and the suitability of the advice given. This ironically seemed to apply more to Independent Advisers than banking employees who were deemed to be self-regulated – let’s not talk about the financial crisis shall we? But unwise advisers took the view that they had to push more product to earn the same reward, as opposed to the more successful ones who chose to offer greater value for money
Fourthly, the abolition of commissions – replaced with fees. Many advisers, and clients alike, couldn’t adapt to a fee-based model. Many clients naturally preferred to pay a commission wrapped up in the investment, which was often spread over time, rather than to write out a big cheque. And advisers struggled to ask for that cheque.
Lastly, higher qualifications and non-relevant CPD. The minimum required qualifications to provide Independent advice jumped from basic certificates to a level 4 diploma which was a huge step up. At this point, many advisers, especially those long-in-the-tooth, gave up the ghost – never ending exams and Continuing Professional Development left little time to actually service one’s clients satisfactorily, and God-forbid, allow us time to make a living. Everyone suffered. Advisers spent hours on courses that had no benefit – to purely satisfy their required hours of CPD -and clients wondered why they couldn’t get hold of their advisers, assuming that when their adviser said they were on a course, that must have meant a golf course.
But does it end there? I believe not. There has been talk of expecting advisers to do pro-bono work one day a week. And it is expected that the minimum requirement may jump again from a diploma qualification to chartered status.
And if this happens, they will ask…”but where have all the advisers gone?”
When I joined the industry, there were big names such as Liberty Life, Allied Dunbar, Cannon Lincoln amongst a few, each employing thousands of advisers and employees. So where are they now? All gone! Insurance companies got swallowed up by international firms, and banks dumped the majority of their advisers overnight without warning, telling their clients they had to look elsewhere for advice.
For sure, the industry had changed beyond recognition from a culture of hard-selling, to a recognised profession, and that can only be a good thing. And those that have stuck it out, are reaping the rewards – a huge demand for advisers but little supply.
But on the downside for clients, since everything changed to a fee-based model, only those with money can afford to get the advice they desperately need – a kind of irony. It is now those really in need that do not have access to such advice. Maybe in the past in the UK, much of the advice was unprofessional, the products were arguably over-charged, and advice was sometimes unsuitable. BUT, everyone had a savings plan or a pension, everyone’s future was getting brighter by the day because they were saving towards their future. Why? Because investments are generally ‘sold’ and not ‘bought’. Very few people wake up and think “I know, today I will buy a Retirement Annuity”.
Advisers were the ones responsible for letting the public know that if they do not save for their future, they would never truly retire. Many of my generation today, and my older clients, may still have some of those old styled investments, inferior to investments today, but boy, are they happy I convinced them to invest 25 years ago. Because now many will typically have £500K +(R9m) saved, much of which would probably have been spent had they not met me.
As the saying goes, “the best savings plan is the one you put money into.”
Today we are in an era of robo-advisers, low-cost on-line investments and free research on the internet – all great in theory – but how much is the younger generation saving today??? Generally speaking, little to nothing. So everyone is now a financial expert but does nothing about it. This means millions of young people will later be dependent on family or the State to survive in retirement.
So I hope the South African regulator takes note of the UK’s financial sector history, not just the improvements, but also of the errors made.
But the message is clear for South African financial advisers and wealth managers……
Just because you work for a big bank or insurance company, do not think you are protected. You may be the first to go. Your company may not even be around in years to come.
But, be professional, get qualified, work hard, give value for money to your clients, be prepared for RDR and have your clients’ best interests at heart, and not only will you succeed, but you and your clients will both earn money together.
Here at Carrick we aim is to change the face of financial services throughout the African Continent, to protect both our clients and advisers alike. Rather than wait for RDR to be fully announced and implemented, we have made the decision to be ready and compliant now. Therefore, unlike the many firms and advisers that will receive a shock when the changes arrive, we expect that it will be business as usual for the Carrick family.
If you have any uncertainty over the future, whether as a client or an adviser, please feel free to come to talk to us.
Thanks for listening
Tel: 071 429 2137