Earlier this year, Insight Discovery, a Middle East based strategic research company, in conjunction with Moonstone Information Refinery, conducted the first South African Investment Panorama survey. The purpose of the exercise was to establish what independent financial advisers want from the asset management companies, platform operators and other financial services companies that they deal with.
Participants were also given the opportunity, via open-ended questions, to air their views on a number of related matters.
Under the heading: “Opportunities and challenges”, the following aspects came to light.
Technology is transforming the IFAs’ business for the better. Some 83% see the additional information that is available to investors as being a major opportunity. Electronic processes are seen as a major opportunity by 80%. Conversely, the IFAs are evenly split in their views on whether DIY investment offerings are a major opportunity or a major challenge. The main challenges are changing regulations (60% of IFAs) and downward pressure on advice fees (69% of IFAs).
Overall, an air of caution prevails. About twice as many IFAs highlighted challenges rather than opportunities. The most commonly mentioned opportunity is the further professionalisation of the industry, even if this means a reduction in the total number of IFAs. The most common challenges are the growing burden of regulation and rising costs in general. When the IFAs were asked to identify just the single most important factor affecting their business, by far the most common response was increasing regulation/compliance needs.
Changes in fees, and particularly the movement away from commission towards a fee-for-advice model, were the second most common response.
Some 75% of IFAs have given consideration to succession planning. A further 19% say they have done so, but only because they have had to ‘put something on paper for FAIS.’ Some 62% have an internal succession plan which means that their clients will be taken over by a colleague at the same firm. Conversely, the remaining 38% have made arrangements with another IFA outside the firm to take over the clients.
It appears that there is room for improvement in the professionalism of the IFAs. Some 37% are currently not members of any industry body or organisation. Some 23% believe that professional standards have much room for improvement.
Virtually all IFAs think that the regulator should do more to monitor unregulated schemes and products. Some 91% believe that the image of the industry has been tarnished by unregulated schemes and products.
Meanwhile, there are very mixed views on the retail distribution review (RDR) document that was released recently by the FSB. The RDR was mentioned as both an opportunity and as a challenge by different IFAs. A sizeable minority of IFAs see it as a ‘welcome change’ that will boost professional standards, and/or a move that validates how they have been doing business anyway. A large number consider that the RDR will increase regulatory red tape and associated costs. A significant number of IFAs consider that the RDR as proposed indicates that the FSB has insufficient understanding of the IFAs’ business.
One indicator of the sophistication of the industry is that it looks for opportunities beyond South Africa. Virtually all IFAs use funds that are domiciled outside South Africa to some degree. IFAs consider that the outlook for markets is the most important single topic at conferences that are hosted by LISP platform operators and asset management companies. More than one third of IFAs expect to lift their clients’ allocations to ETFs in the coming year.
For asset management companies and LISP platform operators who want to do business with the IFAs, it is important to provide good service and a steady flow of information (with over 80% of IFAs expecting to hear from managers at least monthly). However, it is also important for asset management companies to build a brand among the end investors who are the clients of the IFAs. Some 40% of IFAs have been asked by their clients for specific funds from particular fund companies in the last year. The asset management companies who appear to best understand the IFAs and their needs are Allan Gray, Coronation, Investec and STANLIB.
Some 71% of IFAs typically rely more online for trade and investment news. The most popular source, based on the top three scores, was the Moonstone Investment Indicators.
For a snapshot summary of the stats emerging from the survey, please click here.
Asset Managers who are interested in becoming part of the 2016 survey are welcome to contact Paul Kruger.