An analysis of the expectation gap in the personal financial services industry in South Africa

Abstract

The thesis aimed to determine if the factors that financial advisors consider when preparing a financial plan (to address their customers' financial needs and objectives) are the same as those considered to be important by the customers. The study also aimed to determine if recent developments in the financial services industry managed to address the expectation gap in the financial services industry. The study started with an in-depth literature review to analysed the factors that influence the relationship between the financial advisors and customers, established what information is used to determine a customer's financial needs and objectives, and identified how a financial plan can be used to manage risk, plan for investment and plan a person's estate. The result of the literature review was used to prepare two questionnaires, one for users of financial services and one for registered financial advisors. The aim of the study was achieved by comparing the opinions of users of financial services with those of financial advisors. The results of this comparison were used to identify any expectation gaps that still exist. The statistical analysis done on each of the three components of a financial plan identified statistically significant differences in the opinions of users of financial services and registered financial advisors. One of the biggest concerns revealed by the study is the apparent lack of an understanding of the consequences certain specific actions have - not only by the customers but also by the financial advisors. For example, both customers and financial advisors did not totally agree that all information should be disclosed when applying for risk cover despite the fact that non-disclosure could invalidate the cover. The study found that there is a lack of knowledge amongst customers of the principles on which investment management should be based. The study also revealed that there is a difference in opinion between the two groups regarding the importance of the factors to consider when selecting an investment. There is a clear need for customer training in this field .

The investigation into estate planning found an expectation gap relating to the cost and benefits associated with this process. To reduce this expectation gap the financial advisor must provide his or her customer with clear guidelines on what can be achieved during this process before providing customers with any advice. One of the biggest expectation gaps identified was that despite the fact that customers think all fees and commissions payable should be disclosed when obtaining financial advice and using financial products, financial advisors do not agree with this. To reduce the expectation gap there must be an alignment of the objectives of the customer and financial advisor. By aligning their objectives the financial advisor will be able to ensure that the customer's objectives are met in the planning process.