Secondary

Leads-To-Sales

Qualifications and Execution of Sales

The new Fit and Proper (F&P) requirements due for publication any day now contains reference to a new concept which aims to address a thorny issue, namely the different levels of complexity of products sold to the public.

As pointed out last week, a major problem for the Regulator in terms of FAIS was to establish rules and regulations that could be applied equally to both complex and simpler products.

The first step was to differentiate between what eventually became known as Tier 1 and Tier 2 products. This was achieved by involving the industry to arrive at an acceptable agreement on where complex and less complex products should resort.

The next challenge was to determine the levels of competence required by representatives who advise on the various products.

The initial response was the proposed introduction of “execution of sales only”, which can be defined as an intermediary service performed by a person on the instruction of a client that results in the conclusion of an agreement to buy, sell, deal, invest or disinvest in, replace or vary one or more financial products.

The latest draft proposed outlines new requirements regarding qualifications applicable to all, except the following:

(i) a Category I FSP, its key individuals and representatives that are authorised, approved or appointed to render financial services only in respect of the financial products: Long-term Insurance subcategory A and/or Friendly Society Benefits; and
(ii) a representative of a Category I FSP that is appointed to perform only the execution of sales in respect of a financial product provided that –
(aa) the representative has a Grade 12 National Certificate or an equivalent qualification;
(bb) the execution of sales is performed –
(aA) in accordance with a script approved by a key individual and the relevant governance structure of the FSP; and
(aB) under the direct oversight of a key individual who meets the competence requirements for the furnishing of advice in relation to the relevant financial product and whose normal place of work is at the same premises where the execution of sales are performed;
(cc) where the execution of sales is performed by telephone, all conversations with clients are recorded and the recordings are stored and retrievable;
(dd) the FSP has sufficient and adequate controls in place to ensure and to monitor that –
(aA) the representative does not furnish clients with advice; and
(aB) the sales practices and techniques employed by the representative are not misleading, false, inappropriate to the expected target clients or will not result in unfair outcomes for clients; and
(ee) the FSP on a regular basis –
(aA) reviews the recordings referred to in (cc) and/or monitors the representatives, to ensure that they do not deviate from the script or supplement the script with content not approved as contemplated in (bb);
(aB) reviews and monitors the adequacy and efficiency of its controls and quality assurance processes in relation to the execution of sales; and
(aC) reviews the script for appropriateness and compliance with applicable legislation.

Training exemptions

In addition to the above, the “Scripturers” will also be exempt from writing the regulatory exams as well as the new Class of Business and Product Specific training.

In practice, this means that, if you are, for instance, a representative of a FSP that sells derivatives, or collective investment schemes, or retail pension benefits, you are not really required to be knowledgeable about such products, as the script will guide the client to make a decision in which you had no hand in, other than reading it to him. This is construed as NOT providing advice, hence you do not need any of this other knowledge that those electing to provide advice has to have.

Those advising only in respect of Tier 2 products qualify for the same exemption.

At this stage, this crucial document, the “Script”, must be “…approved by a key individual and the relevant governance structure of the FSP” and should be used “…under the direct oversight of a key individual who meets the competence requirements for the furnishing of advice in relation to the relevant financial product and whose normal place of work is at the same premises where the execution of sales are performed.”

This of course sets the table for a feast of “after the event” calamities which flies in the face of the Regulator’s stated intention of being forward-looking, pre-emptive, proactive, outcomes-based etc.

Product providers who consider using this as gap to side-step current qualification requirements should bear in mind that, under the new dispensation, they will be accountable for all unintended consequences following from the actions of their representatives.

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