More people are flocking to financial planners these days, convinced that they will get professional help to navigate the market's stormy seas.
What they don't know is that not all planners give sound financial advice. Some are thinly disguised investment salesmen, and many have no background or inclination to offer true, comprehensive financial advice.
But some industry experts are hopeful that the proposed segmentation of the intermediary market contained in the discussion document on contractual savings in South Africa will resolve some of these problems.
Robert Macdonald, head of Xchange Solutions, said the segmentation will ensure that financial advisers choose between being advice-based or sales agents.
He said the real challenge facing independent financial advisers is the choice they will have to make between selling financial products and focusing on client needs and giving sound advice, irrespective of what product is used.
"Making the shift from selling product to giving independent advice is primarily a mindset shift, though naturally there are business implications that advisers will have to consider," he said.
He said the inherent conflict of interest between the intermediary and the investor is a key contributing factor to the failure of the existing system to work in the best interests of the consumer.
This conflict arises because the remuneration of intermediaries by product providers means there are inevitably question marks about whose interests the intermediary is acting on behalf of - their own, the product provider or the client?
Taking its lead from research conducted in other countries, the discussion paper makes the following specific recommendations:
l That every intermediary must choose to be a sales agent or an independent adviser.
Sales agents will fall into two categories: tied agents, linked to one product provider only; and independent brokers who have relationships with a number of service providers.
l Sales agents will be remunerated by the product provider in the form of commission.
l Independent financial advisers must be free of all product provider bias and will be remunerated by the client only, in the form of fees.
No compensation, in any form, from the product provider will be allowed.
The choice of where an intermediary falls will apply across the board for all of that intermediary's business. He will not be able to be a sales agent in his relationship with one client and an independent adviser of another client.
l The choice of status will also need to be made by intermediary businesses on behalf of the intermediaries in their employ.
A business cannot be both a sales agent and an independent adviser. All its representatives must follow the decision it makes in this regard.
Planning for financial advice in client needs
More people are flocking to financial planners these days, convinced that they will get professional help to navigate the market's stormy seas.
What they don't know is that not all planners give sound financial advice. Some are thinly disguised investment salesmen, and many have no background or inclination to offer true, comprehensive financial advice.
But some industry experts are hopeful that the proposed segmentation of the intermediary market contained in the discussion document on contractual savings in South Africa will resolve some of these problems.
Robert Macdonald, head of Xchange Solutions, said the segmentation will ensure that financial advisers choose between being advice-based or sales agents.
He said the real challenge facing independent financial advisers is the choice they will have to make between selling financial products and focusing on client needs and giving sound advice, irrespective of what product is used.
"Making the shift from selling product to giving independent advice is primarily a mindset shift, though naturally there are business implications that advisers will have to consider," he said.
He said the inherent conflict of interest between the intermediary and the investor is a key contributing factor to the failure of the existing system to work in the best interests of the consumer.
This conflict arises because the remuneration of intermediaries by product providers means there are inevitably question marks about whose interests the intermediary is acting on behalf of - their own, the product provider or the client?
Taking its lead from research conducted in other countries, the discussion paper makes the following specific recommendations:
l That every intermediary must choose to be a sales agent or an independent adviser.
Sales agents will fall into two categories: tied agents, linked to one product provider only; and independent brokers who have relationships with a number of service providers.
l Sales agents will be remunerated by the product provider in the form of commission.
l Independent financial advisers must be free of all product provider bias and will be remunerated by the client only, in the form of fees.
No compensation, in any form, from the product provider will be allowed.
The choice of where an intermediary falls will apply across the board for all of that intermediary's business. He will not be able to be a sales agent in his relationship with one client and an independent adviser of another client.
l The choice of status will also need to be made by intermediary businesses on behalf of the intermediaries in their employ.
A business cannot be both a sales agent and an independent adviser. All its representatives must follow the decision it makes in this regard.
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