Service providers fail to think of consumers

March 22, 2011

By Bruce Cameron

Personal Finance has received a flood of complaints from financial advisers who feel that they should not have to show that they are qualified to provide you with advice and sell you products.

They are objecting to the Financial Services Board (FSB) insisting that every financial adviser in South Africa write a few examinations to ensure they have the proper skills.

The complaints range from “I am too old”, “I have too much experience”, and “I am too well qualified” (this includes having been a teacher or a lawyer) to “It is a waste of time”, as well as accusations that the FSB is anti advisers.

Some of the claims are nothing but extravagant, such as claims that so many advisers will now leave the industry that millions will go without financial advice. That is nonsense.

To start off, where will all these advisers suddenly find jobs?

Other complaints, such as the examinations only being available in English, are a lot more sensible.

One complaint is that the exams have been sprung on financial advisers even though they are already registered.

You may recall that some years ago Personal Finance disclosed that many advisers were simply side-stepping the requirements to become properly qualified. What happened was that everyone and anyone became an examiner of financial advisers, and there were very few controls.

An extreme case involved a number of Absa Bank brokers, who all submitted the same work, in the same handwriting, and even with the same spelling mistakes – and they all passed.

Now a squawk is going up that is as loud as was the opposition voiced by financial advisers before the Financial Advisory and Intermediary Services (FAIS) Act was implemented in full in 2004.

We even have Sanlam chief executive Johan van Zyl, who is also the head of the Association for Savings & Investment SA, embarrassing himself by calling the exams “madness” and “unnecessary” in a radio interview last week. To my mind, this raises questions about the qualifications of Sanlam advisers more than anything else, or was he currying favour with advisers to sell Sanlam products?

It is hardly surprising that Sanlam back-tracked on his behalf this week.

As it is, Sanlam has a major credibility problem due to the way it plundered, and helped others to plunder, the surpluses of retirement funds and medical schemes in the 1990s.

Sanlam also initiated the nasty campaign of vilification against Tony Mostert, the curator of the funds, who has successfully forced Sanlam to pay back a large sum of money. Altogether, Sanlam faces paying back close to R1 billion for its role in the surplus-stripping saga.

Then we have the phony argument – based on claims that up to half of all financial advisers will fail the exams – that the exams will result in consumers paying more for advice. If half of the advisers do fail, it will tell you a great deal about the state of the advice being handed out.

I would suggest that the cost to consumers who receive bad advice is far greater than the fall-out that will result from some advisers failing the exams.

Take the poor quality of savings products sold unquestioningly by product floggers on behalf of the life assurance industry each year. These products often result in people, without their knowledge, having to pay extra tax, particularly when they are on a marginal income tax rate of less than 35 percent and when they are not using their annual income tax exemptions on interest earnings and capital gains tax.

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