Looking forward to a quiet retirement requires making a bit of noise
People planning their retirement today are as different in their approach as are the laws governing the financial advisers they may—or may not—consult. While the role of the financial adviser remains similar, he or she must come to grips with the new Financial Advisory and Intermediary Services Act (FAIS) in order better to serve their clients.
Clients still trust their financial advisers and ask for assistance with issues involving family business trusts, executor responsibilities, as an investment ‘checker’, as an expert on tax and as a business adviser. Each of the functions, however, is riddled with pitfalls.
Project Director of Financial Services at the SAICA, Yusuf Dukander, agrees that the market has changed. “Gone are the days of the product-driven sales broker. Today’s customers want a financial adviser who implements a financial plan and uses sound financial instruments to do so.”
The market is more complex, that clients are better informed, ask probing questions and that financial advisers are far more aware of ‘reputational risk’. “In the past, the broker derived all the benefit from the relationship with the auditor. It was a one-way relationship and the expectation was that the broker would fulfill a need. Now, the financial planner is more important in the relationship, because the risk is transferred away from the accountant to the financial planner.”
The FAIS Act is also very specific when dealing with what is termed ‘advice’. According to the Act, ‘advice’ means — subject to some conditions — any “recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients”. There are numerous examples where advisers must undertake a transparent and well-documented approach to their clients; for example, take a trustee on a trust. The trustee is required to make a decision on where the assets are to be invested. By setting out a clear ‘investment strategy’ document the trustee will be able to make the decision without the potential of falling foul of the FAIS Act.
A similar scenario faces tax practitioners and financial advisers should be careful not make recommendations of the asset allocation of the funds the client is invested into. As a tax practitioner, the risk lies not in the calculations of the tax liability, but in the recommendation of a financial product to save in tax, like, for example, a retirement annuity.
Companies are also affected. The financial directors or managers of companies perform a juggling act, balancing their role as the custodian of the company finances with advising staff on where to invest their funds. Suitably registered advisers must be used to consult with staff. When looking for a team of advisers, a company should seek the services of an organisation that can educate and assist the staff at the appropriate levels; for example, a one-on-one financial plan for senior staff; financial planning workshops; financial presentations; and financial literacy programmes for those who require it.
The new regulations may appear onerous to some, but as Dukander says, well-considered retirement planning is critical, not just for the individual but for the country. “The vast majority of South Africans are not as well informed as they should be—but that is changing rapidly. The role of the financial adviser, along with the expertise with which that role is executed, is essential to the nation’s future prosperity.”