Reaction to the recent introduction of the E-Toll system in Gauteng reminded me of a similar sense of indignation a few years ago when the regulatory examinations were announced.
Many people in the industry developed a very keen interest in how many people wrote the exams, and how many not. One sensed that they were under the impression that, provided there was a strong enough boycott of the exams, it would be called off.
This appeared to be valid when, by the end of June 2011, only 15% of the candidates complied, and the FSB was forced to extend the deadline, or face having to shut down the majority of financial practices in the country.
A year later, this figure jumped to nearly 90%, and those who followed the boycott approach suddenly found the trenches around them were empty. The industry had moved on, and they were left behind.
Unlike those opposed to the toll roads, these rebels without a pause had no OUTA to fight their cause.
There are a number of reasons why many people in the industry did not immediately react to the availability of the regulatory examinations.
The first, and possibly main reason, is that the silent majority always intended to write, once they overcame their finely honed procrastination skills.
The second is that, as more information became available about the various examinations, candidates were able to acquire the required preparation material, and complete the examination successfully. Statistics released by the Regulator, showed a steady monthly improvement in the success rate of candidates.
The examination bodies had their hands full to comply with the demand as news of the successes started to spread, and fear and trepidation dissipated.
The FSB made several allowances to accommodate those who still need to write. Some of the die-hards eventually accepted the inevitable, and complied. By the end of July 2013, the pass rate exceeded 92% for both key individuals and representatives.
About 6% of all affected key individuals and sole proprietors opted not to enrol for the examinations. This number reduced even further as extensions were granted to individuals. By the end of October 2013, for instance, only 33 of all sole proprietors, or 1.6%, had not attempted the exams at least once.
There are a number of bigger picture considerations that one should not lose sight of from the perspective of the Regulator, the industry and the country as a whole.
- The FSB is funded by levying the industry. A serious reduction in numbers would mean a substantial hike in levies, which could force more people out of the industry. This would be the start of a domino effect which would be difficult, if not impossible to stop.
- Increased levies is but one of many additional rising costs facing financial advisors – the UK experience shows that the cost of professional indemnity cover, for instance, skyrocketed as claims increased. The cost of compliance also takes a hefty chunk out of an advisory practice’s income.
- The industry has always shown a substantial turnover in staff numbers, even prior to increased regulation since 2004. New fit and proper requirements make it even more difficult to recruit and train new entrants, and retain them.
- Financial products are, in the main, sold, and not bought. Without a strong distribution force, the government will find its battle against the decreasing saving trend of the nation a futile exercise.
- A decreasing financial services industry will also impact on the state’s coffers by reduced tax income to feed the present imbalance on social grants.
It is clear from the above that serious consideration should be given to where the industry is heading, particularly in terms of those in the distribution trenches.
The loss of experience and expertise will inevitably lead to a reduction in the quality of advice, and achieve exactly the opposite of why regulatory intervention was introduced – protection of consumers.