The new Financial Advisors and Intermediary Services (FAIS) Act is set to make some sweeping changes within the financial services industry. While some fear exists that people will lose their jobs if they don`t qualify for licences, most financial services providers (FSP) are giving the Act their full support, as they believe it will help raise the standard of advice given in the industry and boost its reputation.
For more insight into the impact of the Act on financial advisors and their industry, Etienne Stroebel of JMR Software spoke to Hjalmar Bekker, director of Moonstone Information Refinery (MIR), an independent company providing support services to financial services providers.
These support services extend to the practical requirements of the Act, and the steps required in order for Fops to become compliant. Moonstone also assesses businesses in terms of non-compliance. It assists them in the application of the licences required by FAIS, and organises training where necessary.
JMR: What does the Act mean for advisors?
HB: The Act requires financial advisors to meet certain minimum requirements in order to continue practicing. Many advisors may find it difficult to comply with the minimum requirements within the specified period, particularly those who are not computer literate. It`s also likely that advisors with other business interests may choose to pursue these rather than to go to the effort of ensuring they make the grade.
Undoubtedly, the Act will place a fair amount of strain on Fops, but due to the strict requirements of the Act, those who survive the implementation will be well suited for business in the new environment.
JMR: Will the industry lose a lot of people?
HB: It`s difficult to put a number on the number of financial advisors in SA, so it`s anyone`s guess just how many financial advisors will stop practicing. But it`s likely that a substantial amount of people will leave the industry. Another reason for the drop in the number of FSPs could be that advisors will seek to organise themselves into groups and then jointly apply for single practice licences.
JMR: What are the implications of the "fit and proper" requirements in the Act?
HB: Although the regulations have not been finalised, it`s unlikely that they`ll be so harsh as to discriminate against existing financial advisors.
It is also likely that the Act will provide some leeway for financial advisors to address any shortcomings. Many professionals in the industry are already highly educated and have much experience. The advantages of the new requirements are that they will spur advisors on to improve their educational and skills qualifications continually, thereby enabling them to provide a better service to clients.
FSPs will need to properly assess and identify their training requirements, especially if they have large sales forces.
JMR: What will the general impact of the law be?
HB: The Act`s stricter requirements will, over time, raise the standard of advice given by the industry. If implemented correctly, the law will facilitate more professional services to clients and will certainly bring better credibility to the industry.
JMR: What will the impact of the law be on product suppliers?
HB: Product suppliers may initially experience problems with their distribution channels, especially as some brokers may not qualify for licences. It`s important, therefore, that product suppliers communicate with brokers to assess the impact of the Act on their existing broker community.
In an effort to provide better service, as required by the Act, it`s likely that financial advisors will put more pressure on product suppliers to deliver products that are better defined, well structured and easily sellable.
JMR: Will the Act provide more protection for consumers?
HB: The consumer will never be totally protected. There will always be individuals who either neglect their client`s needs or mis-sell products.
The onus will therefore be on product suppliers to monitor sales activity through their sales channels and make sure that brokers are not selling unsuitable products to their clients.
The protection mechanism within FAIS is not audit-driven but rather complaints-driven. If customers don`t complain about the products or services, it`s going to be difficult for the product supplier or regulator, the Financial Services Board (FSB) to learn of malpractice.
There are, however, indications the FSB will assist with the audit process to ensure that financial advisors are practicing properly. Also, it would make good business sense for both product suppliers and brokers to implement ongoing audits and monitoring of the sales channel.
JMR: How strict will the FSB be in terms of applying the law?
HB: The FSB is likely to be very strict where the application of the law is concerned. It is currently working hard to finalise regulations so that the licensing process can begin and the business of rooting out poor practitioners can get under way. The FSB is planning to launch a drive to educate consumers about their rights. It`s going to clamp down hard on crooked financial advisors and is determined to raise the level of confidence in the industry.
The FSB may find it has an ally in this regard in the form of other financial advisors who`re keen to enhance the reputation of the industry.
Brokers will verify the quality of advice given to their customers by other brokers, and will report malpractice in order to protect their customers and build credibility with them. Naturally, this will lead to an increase in the number of complaints.
The financial services industry in SA stands to benefit from the regulations laid down by the FAIS Act. It`s my hope that FSPs will see this value, and work with the regulator to ensure a thorough and speedy implementation, and enjoy the resulting universal benefit of higher service standards within the industry.
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