Discovery Insure Financial Advisers Summit: Financial regulation to continue, says FSB

Financial sector intermediaries can expect the trend towards regulation to continue for at least the next five years, delegates to the inaugural Discovery Insure Financial Advisers Summit heard on Tuesday.

“There is a lot of regulation right now focused on intermediaries, and it can feel quite overwhelming. Everything the FSB (Financial Services Board) does now is linked to one thing and one thing only – the customer,” said Caroline da Silva, deputy executive officer for the Financial Advisory and Intermediary Services Act (FAIS) at the FSB. Advisors who embedded the principle of customer fairness within their business practices would find it much easier to understand and comply with legislation, she said.

Da Silva acknowledged that intermediaries had faced an “onslaught” of regulation recently, which had been too rules-driven. “The rules-based approach makes it expensive to comply, but it’s not effective. You tick the box, but the outcome is poor. We need more principles-based regulation,” she said.

The principle of Treating Customers Fairly (TCF) would become embedded, as all legislation would build on this approach. The FSB was currently responsible for 13 pieces of law, all of which were sectoral, but these would eventually be collapsed into legal principles which would regulate everyone across the financial services industry. This would make it easier to comply with legislation, although principles-based regulation was by nature complex. “The customers’ view of what is fair might be very different to what the industry thinks is fair. But building the principles of fairness into your business will make it easier to comply,” she said.

Regulations for intermediaries and advisors had only been introduced in the past ten years. The trend towards regulation was expected to continue for at least the next five years, said Suzette Strydom, legal general manager at the South African Insurance Association. Clear, unambiguous and effective regulations were needed, as too much disclosure could also result in confusion for consumers. “I’m not saying more disclosure is good or bad. I’m saying we need to focus on better disclosure,” she said.

Strydom emphasised that the industry needed to discuss how consumers were currently paying for advice and how much they would be willing to pay. “It’s important to have these discussions so that we can provide strategic input,” she said.

Edite Teixeira-Mckinon, deputy Ombudsman for Short-Term Insurance, said the quality of advice clients received was important, as this affected consumers’ relationship not only with the insurer, but with the entire industry. “The independent financial advisor is an extension of the insurer. We realised we get far more complaints from direct insurers than from intermediated insurers,” she said. “In direct marketing, clients have no understanding of what they are purchasing, and this leads to unrealistic expectations when it’s time for them to claim.”

The FSB is currently reviewing brokers’ fee structures, including outsourcing and binder fees, Da Silva confirmed.

“Commission in the short term space is not threatened, but it’s the add-ons. What services do you perform on behalf of your client? Then you can establish what you should be earning,” said Justus van Pletzen, CEO of the Financial Intermediaries’ Association of South Africa.

Da Silva agreed, saying that as the industry professionalised, it became more unfair that brokers were paid the same regardless of the extra services they offered. As a result, the FSB was discussing how clients could pay for advice. At the same time, the insurer should pay brokers for certain services it received, over and above the commission structure.