It is that time of the year where industry associations are giving awards to the best product providers, best advisors, etc. As we look through the lists of prize winners, you will see impressive CV’s with long track records. To be the best in the industry, you have to provide advice or products to the best in the market. Top advisors with years’ experience in the affluent, high net worth individual market.
When you consider the dire financial position of 90% of South Africans, you have to ask the question: What advice is the normal South African citizen with too much debt and too little salary getting?
As an example, a middle-class retirement fund member enquired about the benefits of adding additional contributions to his retirement fund. In light of the new tax breaks of up to 27.5% of taxable income, his employer-sponsored retirement fund will be the cheapest form of saving. The first piece of advice he got from one of the largest Insurer’s agents was to rather invest his extra money into a retirement annuity. The quote included once-off advice fees and trail fees. Which would not have applied if the extra money was invested in his existing retirement fund. This advice was given with no needs analysis done of this member’s actual pressing needs? Apart from the costs and benefit aspects, does this member have an emergency slash fund which contains a few months’ salary in the event of the car breaking down or that school project that came up? Or does this family even have a budget? A simple budget which contains even the smallest amount of savings? Why are products still being considered before advice?
Perhaps it is because the majority of advisors are not paid for advice. Most advisors are paid to sell products by product companies. Such a system is flawed for the average South African citizen who is looking for proper advice and tools to get ahead in life or just maybe, survive.
Even the advisors that have shifted to charging advice fees can really only look after the wealthy that can afford to pay professional fees for advice on similar scales to Lawyers’ fees.
Robo advice, the next best thing in the product pushing genre, will also ultimately be aimed at affluent, educated intellectuals who actually know what they are looking for and don’t want to speak to an advisor.
So what is the solution? The financial services industry eagerly awaits the next white paper on a holistic social security system for South Africa. My plea is that access to financial advice must be included in this plan. The retail distribution review legislation should also include advice as part of social responsibility to individuals who cannot afford high fees. Perhaps financial companies’ Affirmative Action plans should focus more on advice to previously disadvantaged groups and the poor.
Insurance industry bodies, professional advice bodies, the Financial Services Board and the industry itself should consider ways to give the average South African access to affordable advice. The reality is that most South Africans’ financial positions are so dire, corporates should be able to package their advice and tools to be able to roll it out in bulk to the masses as part of social responsibility but, also just because it is good business. Financial education at school level and at the workplace should be compulsory for every South African.
Before a retirement annuity is sold or another life insurance policy, the client should receive a needs analysis which includes a budget and which covers the basic necessities, for example a savings plan, a Will, funeral cover, etc. There must be a holistic look at short term as well as longs term needs.
There is a total misunderstanding of the value of proper advice in this country and the financial services industry is largely to blame for it. It is up to the South African Financial Services Industry, which includes the regulators and National Treasury, to make proper financial advice available to all South Africans.
AWIE DE SWARDT CFP®
MANAGING DIRECTOR: FUTURA SA (PTY) LTD