The Italian word “Andante” features in one of ABBA’s classic songs. Dictionaries define it as “a moderately slow” movement, usually in music.
Closer to home, there is also a Swahili term, Pole-pole, which is translated as “slowly, gently, softly, quietly”.
I recently came across an article on the ANC website titled “The Financial Sector must be reformed”, written by the ANC Treasurer-General, Zweli Mkhize which alludes to a re-focus on prescribed assets.
An aspect that I found very interesting is contained in the introductory paragraphs of the article:
As at September 2014, the Finance, Real Estate and Business Services sector accounted for about 20,3% of South Africa’s GDP thus making it the largest sector of the economy, followed by Government at 17.0% (Source: Stats SA). From an employment perspective, the Finance sector is the second largest employer in the non-agricultural formal sector of the economy accounting for 21.9% of non-agricultural formal jobs. The only sector with higher employment numbers is Community Services which is predominantly government employees and so, within the private sector, the Finance Sector is actually the largest employer in South Africa. (My underlining)
From an RDR perspective, this is an extremely relevant consideration.
Under the heading, Risks to Intermediary Sustainability, the draft proposals list a number of factors it considered in designing the proposals to address these risks.
There are, in my view, other aspects to consider if the risks to the sustainability of adviser practices are not addressed:
- A rise in unemployment at the “largest employer in South Africa”. It is not only advisers who will be affected. They also employ staff. This is something the country can ill afford.
- The resultant drop in revenue for the fiscus – listening to the Minister of Finance last Wednesday, it was evident that we need more tax revenue, not less.
- Negative outcomes for orphan clients in terms of advice and service. Despite succession planning being a legal requirement, the reality shows a marked drop in retention of insurance and investments when clients are not serviced by their adviser of choice.
- Increased levies for those remaining to fund the burgeoning regulatory authorities which could have a domino effect on all of the above.
One sometimes gets the impression that many of the proposals are based on the assumption that all advisers are established practitioners. Our recent survey showed that 65% of respondents in the investment advice business are over 50 years old. There is a desperate need for new blood if independent financial advice is to survive. Building a practice does not happen overnight. Many fail along the way. I would suggest that a minimum period of three to five years is required before a practice can become successful.
Currently, new entrants are allowed to work under supervision until they have acquired the necessary qualifications and experience to operate on their own. In the past, many current independent financial advisers cut their teeth as tied representatives before becoming IFAs.
The problem, of course, is that “their” clients are actually clients of the product provider, so starting an independent practice is extremely difficult, particularly if limitations are placed on their ability to earn an income, be this via fees or commission.
Restraint of trade clauses in previous employment contracts adds to the difficulty for new IFAs to build their businesses.
Another factor to consider is the cost of acquisition of business. Not every client you contact signs the proposal form. This possibly explains the difference in commission percentages between estate agents and financial advisors. In the real estate business, cognisance is taken of the fact that not every house shown to a client is sold, and a lot of spade work needs to be done before the deal is signed and the legalities completed.
Whatever the final decisions on the future of retail distribution, its implementation needs to be undertaken with a great amount of circumspection to ensure that the opposite effect of what is intended is not achieved.
A popular euphemism being bandied about these days is “unintended consequences”. In many cases, it should more realistically be termed “unforeseen outcomes”.
The draft RDR proposals clearly indicate a phased implementation process, which should allow the regulators to monitor the impact of changes. There is also constant engagement with the industry to stay in touch with what is happening.
The title of Hakuna Matata, a song written by Elton John and Tim Rice, and which featured in the Lion King, is also a Swahili phrase which means, roughly translated, “no worries”.
If we Pole-pole and Andante Andante with the reforms, we may just ending up joining the meerkat and the warthog singing Hakuna Matata.
Hopefully, without the irritating American accent.