Consumer Education: A Joint Responsibility

Education is possibly the single biggest challenge facing South Africa.

Current issues like poverty and unemployment can never be eradicated unless there is a major about-turn in the farce currently being dished out as education. We are very likely to see a backlash from the disillusioned, fuelled by irresponsible politicians who cannot believe their luck at being handed such a powerful stick.

Social grants may appease the masses in the short-term, but everyone knows that it must implode at some stage, with dire consequences for the country.

Now, having got that off my chest, let’s look at the current situation in so far as our industry is concerned, particularly in respect of consumer education.

Hanna Barry recently wrote an article in Moneyweb Today in which she states:

The South African public is hungry for financial knowledge. Observing them lapping up the words of asset managers, stockbrokers and property experts at The Money Expo over the weekend made this manifest.

What was equally obvious is that the gap between those who have the knowledge and those who don’t is practically an abyss. And this gaping hole leaves the public wide open to abuse by unscrupulous financial advisors, Ponzi-schemers and simply poor investment decisions.

She concludes:

They need to be taught. They want to be taught. And asset managers, stockbrokers, financial advisors and journalists should be doing more to teach and include them.

While I agree with this, it is more of a moral, than a legal obligation for those mentioned above.

Consumer education is an often overlooked benefit that financial advisers have been providing for many years, without any direct remuneration.

There are, of course, also those at the lower end of the scale who require even more protection as a result of financial illiteracy.

The Financial Services Board Act (Act 97 of 1990) mandates the Financial Services Board to: “Promote programmes and initiatives by financial institutions and bodies representing the financial services industry to inform and educate users and potential users of financial products and services”.

The Financial Services Laws General Amendments Act, 2013 requires the Regulator to “provide, promote or otherwise support financial education, awareness and confidence regarding financial products, institutions and services.’’

The website of the FSB Consumer Education Department contains details of its progress in achieving these goals in an impressive presentation by Mr Lyndwill Clarke, Head: Consumer Education at the FSB, in June 2015.

The latest developments on consumer education are contained in a document titled “Explanatory summary of the Financial Sector Regulation Bill”, which is due to be tabled in the National Assembly soon.

One of the objectives of the Bill is to ensure that financial institutions provide their customers with financial education programs.

The single biggest challenge, for all involved, is the diversity of the population, which demands a wide array of products with varying levels of consumer educational requirements.

Another major stumbling block, if one applies Maslow’s hierarchy of needs, is just how keen different segments of the market are to upskill their financial literacy.

The Retail Distribution Review foresees, for instance, that conduct standards will be set to ensure that products intended for the lower end of the market are simplified to mitigate risk for consumers.

In other sectors of the market, product complexity often lead to abuses, and the word “opaque” appear far too often in the description of products in the RDR documentation.

Marketing material was, and in many instances, still is, aimed at selling a product, rather than enabling a potential consumer to make an informed decision. Efforts to ensure simplified product disclosure documents appear to have died a quiet death.

The effective application of two TCF outcomes, in particular, will have a major impact on the protection of consumers:

  • Products & services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
  • Customers are provided with clear information and kept appropriately informed before, during and after point of sale.

There can be little doubt that consumer education is an industry obligation, be it a legal or a moral one.

Our future depends on it.

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