It seems there are two schools of thought about the future of the financial services industry.
The End of the Innocence
Last month, an interesting article titled “Adieu independent advice”, sub-titled “Heading for the sunset industry list”, appeared in the Financial Mail. A much more positive picture was painted at the opening of the ASISA conference.
The FM article quotes the following figures:
In the 12 months to September 2012, the number of IFAs licensed by the Financial Services Board (FSB) fell by a net 851, says Biddie Biddulph, MD of Astute Financial Services Exchange. The number of tied, licensed financial advisers increased by a net 1510.
The result was to cut the number of IFAs licensed by the Financial Services Board (FSB) by 9% to 8341. The number of tied licensed financial advisers jumped 15.6% to just under 11200. Banks were the biggest recruiters in 2012, adding a net 873.
The decline in IFA numbers began about two years ago, says financial services distribution analyst Werner Kotze. “IFAs traditionally made up about half of all licensed advisers but now make up less than 43%,” he says.
Also concerning is a dearth of experience across the full spectrum of financial advisers. “Only 30% of advisers have more than five years’ experience,” says Biddulph.
This is down from 33% only three years ago, says Kotze. The majority of advisers, 53%, have only one to three years’ experience. This calls into question the quality of advice many consumers receive, he adds.
As always, statistics, and particularly percentages, need to be handled with great care. While I do not imply that the figures quoted above are incorrect, there are more at play than meets the eye.
In my experience, independent advisors were always vastly outnumbered by the number of tied agents representing product providers. What we have seen over the past few years is a steady consolidation of independent practices. In other instances, IFAs sought corporate cover against the perceived storm, hence the substantial increase reflected by banks, as borne out by these statistics.
Somewhere over the Rainbow
A more holistic view was expressed by Johan van Zyl, Chairman of the Association for Savings and Investment South Africa (ASISA) and CEO of Sanlam, speaking at the opening of the 2013 ASISA Conference in Durban recently. He is of the view that stricter regulation of South Africa’s financial services industry alone will not restore confidence in the industry if it does not also ensure a sustainable environment conducive to doing business for the very industry that is being regulated.
Van Zyl pointed out that rebuilding confidence in the financial services industry is a massive challenge that faces not only South Africa but also financial services worldwide. He cites several initiatives being developed by ASISA to address current issues such as BEE and consumer financial literacy. He also commented on the establishment of the ASISA Enterprise Development Fund, which has as its objective “…the creation of sustainable value for all stakeholders through the growth and development of small and medium sized enterprises with a specific focus on enterprise development and supplier development.”
“Initiatives like these prove our industry is serious about making a difference in this country, not just where profits are to be made, but also in non-traditional areas where the only gain is the long-term development and strengthening of the social-economic fabric of our country,” said Van Zyl. A key priority for the industry is to support the national agenda of creating employment, reducing poverty and reducing inequality.
And in the End
Doomsayers are raising issues such as TCF, and the possible replacement of commission with fees, as threats. The industry overcame bigger threats in the past, but the fact that there are new rules, calls for a different approach.
Rather than work against each other, the various bodies representing product providers and intermediaries should strive to pool resources in addressing issues in collaboration with the authorities. This point of view is also supported by Van Zyl in his address at the FPI conference.
It is going to be very difficult, if not impossible, for the small independent advisor to hold his own in this new environment. Fighting change on your own, is a losing battle.
The answer to the title of this article is obvious. In fact, it has been the case for the last nine years. Your choice of how you face the future will have a significant bearing on where you will be, a few years down the line.
At Doha airport, an advertising slogan reads: Progress through diversity.
In our case, I believe, it should be: Progress through unity, despite diversity.