The Financial Services Board (FSB) has proposed doing away with the payment of commission on investment products‚ as part of reforms to the market for financial retail products sold to individuals.
The only remuneration would then be a customer-agreed fee to be benchmarked by the FSB. The commission-driven termination penalties would no longer apply.
Mis-selling of products remains a concern because of some of the current incentive models.
The board has proposed the changes to remuneration incentives as existing regulations failed to ensure sufficient protection against mis-selling and unfair charges by financial advisers.
This follows a review of the retail financial services market by the FSB over the past three years.
It found that despite progress made through the Financial Advisory and Intermediary Services Act (Fais) to improve disclosure to clients and to mitigate conflicts of interest‚ mis-selling and poor financial outcomes for customers remained a significant concern.
The FSB’s review culminated in a discussion paper outlining 55 proposed policy interventions. The board has given stakeholders until March 2 next year to comment.
Speaking at a discussion on the proposals in Pretoria on Tuesday‚ the FSB’s head of market conduct strategy‚ Leanne Jackson‚ said the fact that product charges might not include the remuneration of the adviser meant “commission-driven” termination penalties would not apply on products sold in future. The FSB was still working on ways to reduce penalties on legacy products.
Standards would be set for the sale of specific products where a low level of advice was necessary.
Caroline da Silva‚ deputy executive officer for Fais‚ said the FSB wanted to prevent a situation where an advice gap was created.
It was necessary to clarify the circumstances in which no-advice or low-advice models were appropriate as this would influence the incentives for advisers‚ she said.
FSB deputy executive officer for insurance Jonathan Dixon said advisers would have to explain clearly the capacity in which they acted‚ on whose behalf they were acting‚ what services they were providing and what payment they were receiving for delivery of those services.
The desired outcomes would be the delivery of suitable products and access to suitable advice. The FSB was keen to ensure that financial customers were able to understand and compare the nature‚ value and cost of advice.
Da Silva said the proposals would enable experienced advisers to price in accordance with the value of the service they offered in a more transparent way.
Currently‚ customers were of the view that if advisers did not sell them a product‚ they did not have to pay for anything. This was despite advisers having spent hours on planning their financial future.
A key consideration for the proposed changes to remuneration models was to support sustainable business models for financial advice over the long term‚ she said.
The FSB said the new proposals would be implemented before the middle of 2016.
These proposals were in line with the comprehensive overhaul of the financial sector by the Treasury.
This included the “Twin Peaks” approach that will see the separation of prudential and market conduct regulation of the sector. — BDlive.co.za
Commission on investment goods may end
The only remuneration would then be a customer-agreed fee to be benchmarked by the FSB. The commission-driven termination penalties would no longer apply.
Mis-selling of products remains a concern because of some of the current incentive models.
The board has proposed the changes to remuneration incentives as existing regulations failed to ensure sufficient protection against mis-selling and unfair charges by financial advisers.
This follows a review of the retail financial services market by the FSB over the past three years.
It found that despite progress made through the Financial Advisory and Intermediary Services Act (Fais) to improve disclosure to clients and to mitigate conflicts of interest‚ mis-selling and poor financial outcomes for customers remained a significant concern.
The FSB’s review culminated in a discussion paper outlining 55 proposed policy interventions. The board has given stakeholders until March 2 next year to comment.
Speaking at a discussion on the proposals in Pretoria on Tuesday‚ the FSB’s head of market conduct strategy‚ Leanne Jackson‚ said the fact that product charges might not include the remuneration of the adviser meant “commission-driven” termination penalties would not apply on products sold in future. The FSB was still working on ways to reduce penalties on legacy products.
Standards would be set for the sale of specific products where a low level of advice was necessary.
Caroline da Silva‚ deputy executive officer for Fais‚ said the FSB wanted to prevent a situation where an advice gap was created.
It was necessary to clarify the circumstances in which no-advice or low-advice models were appropriate as this would influence the incentives for advisers‚ she said.
FSB deputy executive officer for insurance Jonathan Dixon said advisers would have to explain clearly the capacity in which they acted‚ on whose behalf they were acting‚ what services they were providing and what payment they were receiving for delivery of those services.
The desired outcomes would be the delivery of suitable products and access to suitable advice. The FSB was keen to ensure that financial customers were able to understand and compare the nature‚ value and cost of advice.
Da Silva said the proposals would enable experienced advisers to price in accordance with the value of the service they offered in a more transparent way.
Currently‚ customers were of the view that if advisers did not sell them a product‚ they did not have to pay for anything. This was despite advisers having spent hours on planning their financial future.
A key consideration for the proposed changes to remuneration models was to support sustainable business models for financial advice over the long term‚ she said.
The FSB said the new proposals would be implemented before the middle of 2016.
These proposals were in line with the comprehensive overhaul of the financial sector by the Treasury.
This included the “Twin Peaks” approach that will see the separation of prudential and market conduct regulation of the sector. — BDlive.co.za
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