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We are Stardust

(I attached links to the songs mentioned in the article to help set the mood while you read)

Woodstock was a “happening”, to use a buzz word of those times. In the words of Paul Simon, the hippy era was: “A time of innocence, a time of confidences”. The artists were wild and woolly, yet managed to deliver the message of love, peace and understanding.

Pre FAIS, this very much applied to the financial services industry. When FAIS was announced, we glibly sang along to this line:

Well maybe it’s the time of year/Or maybe it’s the time of man/I don’t know who I am,
But life is for learning.

Then reality set in.

It seemed that the new legislation was as perplexing to the regulatory authorities as it was to the industry. One of the first determinations by the Ombud, concerned a bank broker who placed a client’s intended short-term investment in a five year plan. The bank was fined for allowing its officer to misbehave.

Since then, the focus appears to have shifted to the individual perpetrator, rather than the institution. Often, it was the product provider who encouraged, and financially induced, the individual to toe their line, or face expulsion. The focus was on selling products which generated the most income, which was not necessarily the best solution for the client.

There was universal acceptance, by advisors, of the intentions of the new legislation. We all welcomed steps to remove the bad apples from the barrel.

Then can I walk beside you/I have come here to lose the smog.. Over time, though, we started feeling like …a cog in something turning.

What happened, is that the application of the law lost contact with the real world of financial advice. The focus on the practical application of regulatory measures, appeared to ignore the relationship between advisor and client.

Protecting consumers became the all embracing virtue, to the extent that individual choice ended up on the sacrificial altar. Big brother will decide what is best for you.

This is one of my main concerns with the content of the recently released discussion paper on proposed changes to conventional and living annuities. The media release puts it thus:

A Living Annuity is a complex product requiring financial advice and regular reviews, and exposes pensioners to investment risk (i.e. up and down movement in market prices) and longevity risk (i.e. pensioners outliving their retirement income). The proposal in this regard is to open up the market for Living Annuities to more competition, but simultaneously regulate them more tightly. Further, retirement funds will be required to identify a default product, which has some longevity protection, into which members are to be automatically enrolled when they retire.

A Life Annuity is an insurance product whose value-for-money is therefore difficult for consumers to establish, and may be expensive. The reform may also allow for a default combination product, which will incorporate some longevity protection but have more flexibility than a standard Life Annuity.

Protecting the client against his own ignorance, is a major function of the honest advisor, and the reason why trail commission is earned. In my discussion on this with treasury, one official appeared to be unaware of the arrangement that, for certain products, one has to obtain a mandate from the client each year.

Well maybe it’s the time of year/Or maybe it’s the time of man/I don’t know who I am/But life is for learning.

This time, sung by the client, though.

It appears that the authorities have little faith in their own legislation. FAIS was created to regulate financial advice and intermediary services. Unfortunately, the focus is so strong on the form and procedure of compliance, that very little of the intended benefit has trickled through to the client.

Even worse, it has, in many instances, stifled the focus of advice to compliance with requirements, rather than the real needs of the client, as it was in the past.

The regulatory exams, which was supposed to equip advisors with the required knowledge of the relevant legislation and products, appear to have ground to a halt. Continuous professional development was postponed indefinitely.

What appears to be missing, is an appreciation for the value of individual advice, as opposed to no advice. Are we heading back to the Henry Ford era where the client could choose any colour, as long as it was black?.

The conclusion of all of this could well be a massive exodus of experienced advisors, ultimately best qualified to help the new legislation achieve its goals, yet incapacitated by the very rules implemented to ensure it.

I’m going on down to Yasgur’s Farm/Gonna join in a rock and roll band/Gonna camp out on the land/get my soul free.

Adam and Eve left the Garden of Eden, sans fig leaves. Will it be possible for their kids to return, given the barriers to entry erected by the keepers of the gate? At best, with great difficulty.

Those who understand the practicalities of growing advisor numbers, will know that it will be equally difficult in our industry.


Time it was, and what a time it was, it was
A time of innocence, a time of confidences
Long ago, it must be, I have a photograph
Preserve your memories, they’re all that’s left you.

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