Shall the Twain ever meet?

This article concerns the difference between legislative requirements and practical reality.

A recent conversation with a reader concerned the requirement that financial statements must be submitted within four months. Before, FSPs had six months to do so, and in view of how accounting firms and tax practitioners operate, this was already a tough call. The relaxation of the requirement to submit audited statements for some FSPs did help, but for the rest it is still a tight squeeze.

Possibly the best example of the disparity between the intentions of legislation, and the eventual outcomes, is the ill-fated Promotion of Access to Information Act (PAIA). Ten years after it was supposed to be implemented, it is still around, in very fragmented format, and way off the mark compared to what it originally set out to achieve. Every attempt to change snags resulted in piecemeal changes which addressed one problem, but created others.

The way to hell may, indeed, be paved with good intentions. But, it still gets you there.

Despite its shortcomings the need for such an act was recently demonstrated in a number of instances where there were attempts to cover up wrong doings, and the media invoked PAIA to obtain the facts and expose the culprits.

The question on my mind is this: What have we achieved since the FAIS Act was published in 2002 and started affecting our daily lives on 30 September 2004?

There was wide acceptance of the goals of this legislation in those early days. All of us who had the best interests of the industry (and our clients) at heart, saw this as the way to clear the industry of the bad eggs who tarnished our image.

Eight years later, there are concerns about the practical impact, and unintended consequences, of this additional regulation of the industry. What started off as a 39 page document has now taken on voluminous proportions. One sometimes wonders if anybody understands all the implications and requirements of the Act. Is it not perhaps, today, a case of being unable to see the wood for the trees?

Relatively little has happened in terms of related legislation: the Long- and Short-term Insurance Acts, CISCA and the Medical Schemes Act. Relative, that is, in comparison to the impact of FAIS on the daily lives of those involved in providing financial advice and intermediary services.

While product providers affected by the above Acts have resources, both financial and intellectual, to look after themselves, the smaller operators in the advisory field have to fend for these additional requirements by themselves. The constantly increasing regulatory burden impacts directly on their time, which in turn reduces their ability to earn an income.

There is regular consultation with the industry. The qualifying criteria on which the regulatory exams were based, for example, were drawn up after extensive input from the industry. The regulator also regularly consults with industry bodies such as ASISA and the FIA.

My question is: Is there enough feedback from those at the coalface about the practical impact of FAIS on them and their clients? Does this get directly to the lawmakers? One sometimes worry that sight may be lost of the fact that, at the heart of all of this, is the consumer of our products and services.

One should never lose sight of the fact that the implementation of this legislation stemmed largely from huge losses suffered by investors due to corporate malpractices. From there it fanned out to include advice, and, quite frankly, lost the plot. It ended up with businesses such as those selling crockery or linen via mail order also falling in the FAIS net. To be able to insure goods in transit, and the outstanding balance for those paying installments, one has to be licenced and conform to the same obligations as someone who advises a client on retirement planning. Hardly an area where consumers can be bankrupted, is it?

Mr. German Anderson, deputy executive officer of the Financial Services Board, was recently quoted in an article in Business Report as saying:

“The FSB continues to recognise not only the need for independent advisors in the financial services environment but also has a high regard for the role they play. The personal engagement that takes place between such advisors and their clients, in my view, serves to eliminate a multitude of problems or misunderstandings that could arise, whilst at the same time essential financial consumer education inevitably occurs.”

At the heart of the problem of legislation and its impact on the day to day workings of advisors lies communication. In my view, more direct, and accessible portals need to be created to facilitate this. Educational interaction, such as the telematic broadcasts conducted with the industry, need to be expanded. It should be made available to a far wider audience with a view to encourage dialogue. In my definition, that means two-way communication.

Feedback from many candidates who successfully completed their level 1 regulatory exams indicates that they regarded it as empowering. Others feel it made little impact, as indicated on the poll currently on our website. Lessons learnt during this exercise should be used to make the next level an even better experience, but is the feedback getting to the FSB?

Only when we combine legal requirements with practical realities can we hope to achieve the same kind of ambience that SARS has managed to create with its “clients”. I never would have believed it possible that one can feel amicable towards someone who seems to just take your money for others to misspend, and yet that is exactly what the Receiver has achieved.

Maybe their blueprint should become compulsory for all other government bodies?

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