REs: A waste of time, or empowerment tool?

Shortly after the Investment Indicators went out on Monday, I received calls from two readers about different matters. During our conversations, both echoed the same sentiments: Preparing for these exams did not add an iota of value to my business, other than a massive administrative schlep.

I suspect I can hear a massive grunt of agreement out there.  On the same day, a colleague sent me a link to an article by Bruce Cameron in Personal Finance. The article discussed two recent determinations by the FAIS Ombud regarding investments in property syndications.  The point of this article is not to discuss the merits or otherwise of these investments, but rather what we can learn from the mistakes made by others.


For the sake of brevity, I will just extract the bare essence of the findings by the Ombud. For this purpose, I will exclude any mention that is product specific. The ombud found that the advisor did not, as required by the Financial Advisory and Intermediary Services Act:

• Explain the extent of the risk to the client.

• Take into account the client’s lack of understanding of the recommended product and the complicated structure of the product.

• Properly assess the client’s risk in terms of the product recommended.

• The advisor admitted that he knew there was a risk, and should have been aware that it “might not be appropriate.”

• Warn the client that she should rather consider safer products.

• Complete a product replacement assessment, which requires full disclosure of “the actual and potential financial implications, costs and consequences”.

• Consider any other products that would have addressed the client’s needs more appropriately.

The other determination revealed additional omissions by the advisor, apart from those appearing above. She failed to:

• Conduct a due diligence investigation into the product provider

• Determine the client’s risk profile in order to ascertain her risk

• Keep proper records of advice as required by the Financial Advisory and Intermediary Services (FAIS) Act and its code of conduct;

• Comply with various provisions of the code of conduct when she rendered advice to Coetzee; and

• Establish whether the product complied with relevant regulations.

When determinations like these were made against advisors in 2004 and 2005, one felt sorry for them. It was a new way of doing business, and while most of the transgressions, mentioned above, applied then, we knew that it would take time for this to become part and parcel of how we do business.

The advice, in the two cases referred to above, was given in 2009 and 2010. This is four and five years after the FAIS Act and related legislation became effective. If those giving the advice had not in this time learnt what was required of them, when will they ever learn, as the song goes?

If it was possible to do a “clear conscience” check for each registered key individual and representative in the industry today, I wonder how many could truthfully admit to having at least read the applicable legislation, before they were obliged to prepare for the REs?.


Is it possible to regard your business as being compliant, if you do not know what the requirements are?  Resistance to change is a major reason for people viewing the REs negatively. I want to conclude with an e-mail received two weeks ago from a broker friend in Durban, who was sharing a bad service experience, and how he managed to resolve it:


“Had I not been forced to study for REs,I would not have picked this up. I passed [88 & 81%-my compliments on turnaround times] but I didn’t do enough work. I did enough to know that I don’t know enough; but I am an intelligent exam writer and fairly skilled with multi-choice questions. I used my little knowledge to tease out probable answers. That said, RE has empowered me with quite a bit of knowledge that I didn’t have before and thus I do not regret the study time cost other than having to try and remember irrelevant dates and amounts etc that will never be used in practice [e.g. 14 or 15 days].”


“I now know that I could design a session to help people understand the RE topics in a user friendly way, but it would not be exam orientated. My training background is that you need to give the big picture orientation , then add some meat to the skeleton and then the detail for exams. Although I attended some workshops, no one delivered the contextualising part well on which to build. All went straight to detail and we got lost. Many would have passed on knowing detail, but I wonder about their overall understanding which really should be the purpose of the whole exercise.”


In hindsight, much could have been done differently, both in terms of the REs, and our preparation. But that is history.


Looking forward, we should focus on what we can take out of the exercise. The obligation to keep up to date with changes in all the relevant legislation is another example of something which many of us are reluctant to adhere to. Perhaps, if we use the knowledge gained in preparing for the REs as a basis to extend our learning, we would be surprised at what benefits it might bring.


And how much easier it is to do something that we want to do, rather than have to do.


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