Evaluating the effect of the legislative and regulatory requirements in the financial services industry
Van der Westhuizen, David Pieter
MetadataShow full item record
South Africa has faced many changes in the last 20 years. There are some glaringly obvious ones such as democracy while others, such as the considerable increase of the legislative and regulatory requirements in the financial-services industry, are more subtle. Both however, have far-reaching consequences for both individuals and businesses. In Schaeffer's keynote address at the 2011 Financial Planning Convention, the global trends currently influencing the financial-planning profession were pointed out. These included the move towards a more relationship-based approach between financial planners and their clients, with holistic service offerings and regulatory change. Currently close to 100 000 Financial Services Board (FSB)-registered brokers/ advisors/ planners/ consultants claim to offer financial advice. Of these representatives only 4 600 (approximately) are Certified Financial Planner® professionals. The Financial Planning Institute of Southern Africa (FPI) maintains that the regulatory environment governing the financial industry is dynamic. Coupled with a tumultuous economic environment, this enforces the importance of an expert to assist individuals and businesses in planning for the future. The primary purpose of the Financial Advisory and Intermediaries Services Act (FAIS Act) is to: 1. protect the client against indecorous conduct by the financial service provider (FSP) and its representatives when providing financial advice and/or rendering intermediary services to clients; 2. ensure economic efficiency of the industry; 3. ensure that clients of FSPs are provided with sufficient information regarding their financial products, the representatives selling the products, the represented FSP and the product provider offering the products. The effect of the FAIS Act is that key individuals and representatives are now being held responsible for their actions, which may include providing incorrect information or not having sufficient qualifications or experience. According to the FSB the FAIS Fit and Proper requirements determine a set of requirements that all FSPs, key individuals and representatives need to comply with. The Determination of Fit and Proper Requirements of 2008 outlines the categories of fit and proper requirements for FSPs, their key individuals and representatives. The categories of the FAIS Fit and Proper requirements are: - honesty and integrity requirements for FSPs, key individuals and representatives; - competency requirements of FSPs, key individuals and representatives; - experience requirements of FSPs, key individuals and representatives; - qualifications requirements of key individuals and representatives; - regulatory examinations requirements of key individuals and representatives; - continuous professional development requirements of FSPs, key individuals and representatives; - operational ability of FSPs, key individuals and representatives; and - solvency of FSPs. The empirical study of the research was conducted nationally, within South Africa. The focus of the study was to investigate the perception of financial planners with regard to the regulatory and legislative prescriptions of the financial-services industry. The general objective of the study is to provide a quantitative measure of the perception of financial planners of the effect that the legislative and regulatory requirements in South Africa have on the ethicality of the financial-planning industry. To achieve this objective, the empirical study focussed on the responsibilities of financial-services providers and the FAIS fit and proper requirements as set out by the FAIS Act. The population identified for the empirical study consisted of financial planners that provide advisory and/or intermediary services in South Africa. The population of the study consisted of the full advisory complement, 826, which form part of the advisory division of a major South African financial-services provider. These financial planners are located across South Africa, in all nine provinces and in rural and metropolitan areas. Based on the result of the adjusted sample size equation, the required sample size for the study is reduced from 266 to 201. A total of 260 responses were received for the study which ensures a high level of accuracy is achieved from the findings of the research. The results of the empirical study provide ample proof that financial planners support the necessity and specificity of the FAIS fit and proper requirements as defined by the FAIS Act. Additionally, the financial planners agree that the determinants of the FAIS Act are not only beneficial to the sustainability and ethicality of the industry, but also support the success of the planner and ultimately ensure that clients receive the best possible financial advisory and/or intermediary services.