South Africa's financial advisers show a high awareness of the impact of the ongoing regulatory process on the intermediated distribution environment. This is one of the key outtakes from the 2014 RGA_FIA Financial Adviser Survey that provides valuable insights into the mind-set of 273 advisers specialising in the life and investment space.
RGA Reinsurance Company of South Africa Limited (RGA South Africa), in partnership with the Financial Intermediaries Association of Southern Africa (FIA), conducted the survey in October 2014, just a month before the Financial Services Board (FSB) published its Retail Distribution Review (RDR) paper. The paper proposes far-reaching changes to definitions applied in the financial services space as well as to the remuneration of advisers.
The survey was designed to evaluate the perceptions of financial advisers around specific areas, including: the degree of satisfaction with the services provided by life insurers; an evaluation of the efficiency of advisers in various business activities; and the impact of proposed regulatory changes on the industry.
Top of mind among financial advisers is the likelihood that commissions paid on the sale of life products will change, both in quantum and timing. As things currently stand, 58% of life intermediaries receive the bulk of their commission (80% to 100% of total) by way of up-front commissions, but very few expect this situation to persist.
In fact 70% of advisers expect that they will earn less than 20% of their total life commission purse from up-front commissions in the future. "The expectation on the distribution of future life insurance commission earnings is understandable, given the direction of proposed regulatory interventions in the retail distribution environment," says Justus van Pletzen, CEO of the FIA.
The same awareness exhibits in advisers' expectations for commissions earned from premium escalations, with most planners expecting such commissions to account for less than a fifth of their business a decade from today. This is in line with regulatory proposals to rein in commission on premium escalations.
Another notable outtake from the 2014 RGA_FIA Adviser survey is that South Africa boasts a wealth of experience in the life and investment advice space. Almost two-thirds (61%) of survey respondents indicated that they had more than 20 years' experience in financial planning with 72% of respondents aged 50 or over.
"The rising average age of financial advice professionals has been a concern for some time, but we are confident that recent initiatives to promote this sector - including ventures to transform the industry - will introduce fresh talent," says Van Pletzen. "In the interim, we urge consumers to celebrate the fact that we have such a talented pool of advisers to assist them in structuring risk and investment portfolios."
The survey dispels the notion that financial advisers receive excessive remuneration from the sale of life products, with the bulk of participants (45%) generating between R16,000 and R50,000 from commissions. Most advice practices (47%) earn between R5,000 and R30,000 per month in fees and commissions from the sale of investment products.
These numbers should be tempered in light of the fact that the incomes generated from product sales form part of an advice practice's overall revenue that must be utilised to pay administrative and compliance expenses in addition to adviser salaries.
Consumers can take solace from the survey findings with regards the factors that motivate the country's advisers to contract with product suppliers. Their primary concern is with product features - important in matching consumer needs - followed by insurer support to the advice practice.
Price as a consideration in contracting with an insurer is only third on the list. "The most important function of an adviser is to ensure that his or her client's financial needs are met, so the obsession with product features makes perfect sense - price is important but should only be considered in conjunction with product coverage," says Van Pletzen.
Where next for the evolution in life and investment financial advice? The RGA_FIA Financial Adviser Survey suggests that advisers want to remain as independent as possible to offer their clients the best overall mix of product to ensure their needs are met.
Although remaining independent has its challenges, 92% of the not-tied financial advisers in the survey indicated that they have not considered joining a single insurer as a tied agent. In addition, 84% of respondents indicate that they have not considered shifting their primary support from one insurer to another.
Respondents highlight independence, access to a wide range of products, and ability to provide clients with unbiased advice and flexibility as some of the reasons for not joining a single insurer. They also highlight satisfaction with the product and services of insurers which they currently support.
"We are encouraged by the overall positive feedback from this survey, in particular the fact that 60%-plus of respondents are positive or very positive about the future of intermediated advice," concludes Van Pletzen.
It is also uplifting that 54% of respondents would recommend financial planning as a career. South Africa's life and investment advisers certainly believe that there will always be a market for face-to face planning, particularly for high-net-worth individuals.
While there are still ongoing consultations on the RDR paper, it is comforting to know that 34% of respondents already have their business models geared towards a fees-based or as-and-when structure.