We shared information on this topic before. The March edition of the ASISA newsletter, “In the Loop”, contains new insights which we believe assists better understanding of this very important topic. We quote freely from this section of the publication.
The FSB held Insurance Regulatory Seminars in Cape Town and Pretoria on 8 November 2012 and 22 November 2012 respectively. The discussion was opened by Jonathan Dixon with a presentation summarising the responses received to its letter of 11 November 2011. He then went on to give the FSB’s current position on certain issues. Mr Dixon was at pains to point out that the FSB is not yet ready to make specific recommendations. The feedback that he gave was a high level initial update on where the FSB’s thinking is currently.
IN SUMMARY:6
A full retail distribution review is underway
- In considering the issues, the FSB has come to the conclusion that a review of remuneration models in isolation will not achieve the desired outcomes. They have therefore embarked on a full review of retail distribution. Distribution models need to be placed under scrutiny as part of the broader Treating Customers Fairly (TCF) framework.
- It is the FSB’s view that the product provider taking ownership throughout the product life stage cycle, including distribution, will be key to the reviewed process. This may impact on the present FAIS model, and consequently the review could well have implications for the current FAIS legislation. The FAIS Act currently places conduct obligations on FSPs, with compliance reports being sent to the FSB. In this way, the FSB acts as a “first line of defence”. TCF has a different perspective, placing the primary obligation on product providers, including distribution of product.
- As part of the review, the FSB will need to look at tied/multi-tied agents versus truly independent advisors.
Definition of intermediary services
- Both the Insurance and FAIS departments within the FSB agree that consistent definitions should be developed across the various applicable pieces of legislation – currently, the Insurance and FAIS Acts have different definitions.
- Possibly, it is the term “intermediary services” that causes the difficulties. Maybe the definitions should be more activity-based, with different components. For example, financial planning is different from giving product advice. Possibly the various upfront and ongoing components should be separately defined. They will look at appropriate remuneration for different components of advice, and will also look at the independence of product advice.
- Referral fees are an issue for consideration – they intend to approach referral fees differently depending on whether the referral is from another FSP, or from some other 3rd party.
Investment product commissions
- The FSB is in favour of a fee-basis for investment business and not commission (they include savings business in the term “investment”). They were not convinced by arguments received to the contrary.
- What will the fee basis be? They will need to consider this, but they do want level playing fields irrespective of product type e.g. Long-Term Investment (LTI) product or Collective Investment Scheme (CIS) product.
- Low-income market: They are open to commission remaining in this market, but are worried about “middle income creep”. They will need to appropriately define “low income”.
We are heartened by two things. Firstly, that the Regulator realises the complexity of the issues involved, and secondly, its involvement of the industry to address the issues concerned. We trust that the voice of independent advisors will also be heard in the discussions as they are likely to most affected by these proposed changes.
We will publish part II of this presentation on Thursday.
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