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How IFAs Can Navigate Challenging Times

Posted on 5 Apr 2023

From running a profitable business while the country is on the edge of a recession to navigating a complex, ever-changing regulatory environment, financial service providers (FSPs), especially independent financial advisors (IFAs), can expect their fair share of challenges in the coming years.

Joleen John, Group Managing Director at Masthead, and Anri Dippenaar, Head of Compliance at Masthead, look at the challenges financial advisors face and give advice on how they can continue to run successful businesses in uncertain times.

Attracting and keeping clients in a tough economy:

Even during the best of times, financial services and insurance products are seen as grudge purchases. Now, with record level food price inflation, load shedding, rising fuel and energy costs and the rising repo rate putting a squeeze on household incomes, it’s even more of a tough sell.

“Financial advisors have to convince people to save for a rainy day, for a child’s education or for an unforeseen medical condition, and in South Africa, where we tend to lean more towards an instant gratification culture than a savings culture, that’s no mean feat,” says Joleen John, Masthead’s Group Managing Director.

“Policies are often the first thing people cut when they’re struggling financially, but advisors need to remind their clients that having that safety net is crucial, especially when the economy is down,” she adds. “A good advisor will know more about a client’s personal circumstances that determine their finances. They’ll be able to advise their clients that even though money is tight, now is not the time to cut life insurance or go off medical aid; now is the time to downgrade your car or cancel ‘luxuries’ like streaming services.”

Her advice to financial advisors is to be invested in their clients. “Don’t just be interesting in terms of your technical knowledge but be interested in your clients’ personal circumstances and their unique situations. You have all this knowledge on financial products; you know the stats and have insights into financial markets, but it means little if you don’t have a personal connection with the person sitting across from you.

“You need to understand your client’s history with money and how that has shaped their attitude towards managing their finances. Actively listen to your clients and get to know them on a personal level,” she says. “This might sound overtly simplified, but if you have that skill in your arsenal, it sets you apart.”

Getting regulatory requirements right:

Turning a profit in the current economic climate isn’t the only hurdle advisors need to overcome. According to PwC Research’s 2022 Global Risk Survey, organisations’ risk environment has changed significantly in the past two years due to global geopolitical instability, supply constraints, cyber risks, sanctions and safety issues.

And in addition to these global challenges, local businesses also need to be ready for the next wave of market conduct legislation, explains Anri Dippenaar, Head of Compliance at Masthead. “While advisors are trying to run the business side of things, they need to stop and ask themselves: ‘Did I interpret the new regulations correctly? Do I have the necessary measures in place to comply with the latest requirements? What have similar businesses done to adapt to the new rules? What are the risks facing my business? What is coming next?

“This takes up a lot of time and energy, and many IFAs don’t have the resources to do this themselves,” Anri adds. “And if there is one thing 2022 showed us, it’s that the regulatory landscape is developing faster than ever because the world around us is developing faster than ever.”

She gives the example of the amendments made to the Financial Intelligence Centre (FIC) Act late last year and South Africa’s greylisting by the Financial Action Task Force (FATF) in February 2023.“Masthead kept an eye on these developments, and we kept our clients informed of what might be expected from them. Even before the amendments were passed, our Compliance Officers looked at our clients’ financial practices, identified possible problem areas and implemented practical solutions. We do daily regulatory screenings. We analyse and understand the lengthy documents on legislative changes and other critical business information, we include them in our products and services, and we help our clients make the required changes in their businesses.”

While financial advisors had to contend with several policy changes in 2022, the regulatory environment will be in an even greater state of flux in the years ahead. The Conduct of Financial Institutions (COFI) Bill should be on every FSP’s radar according to Anri. “Masthead has been following its development since the first draft was published in December 2018, and we’ve commented on both the first and second draft.”

According to the FSCA Regulation Plan, COFI is expected to be in formal and informal consultation until 2025. However, Anri believes financial advisors should already start preparing for this new policy framework of outcomes-based monitoring and conduct based reporting. The Regulation Plan also indicates that the FSCA wants to finalise the cross-sector licensing forms in Q1 of 2023, indicating that COFI is moving closer to becoming a reality for FSPs.

And there are several other important policy changes and industry developments advisors need to take stock of, like the conduct of business return report (Omni-CBR), which the FSCA aims to have in place in 2026.

“COFI and Omni-CBR are going to be Masthead’s focus areas this year. We’re consistently analysing it, looking at it, unpacking it and talking to the regulator about it. We want the transition to COFI and outcomes-based reporting through the Omni-CBR to be as smooth as possible for our clients, so they can continue to run their businesses without any hiccups.

“We also see several exciting opportunities for FSPs to understand their business better by making use of conduct indicators and business development data,” she adds. “And as a business we are exploring tools and options to see how we can help our clients improve on this. The Protection of Personal Information (POPI) Act and cybersecurity are also front of mind following several instances of cyberattacks and data breaches.”

Learning to adapt to survive:

It’s easy to feel overwhelmed by fact that the regulatory environment keeps changing, especially if you’re an IFA with limited resources, admits Joleen. “There is a lot of angst in the system. Change is always scary, but if you can adapt, you will survive,” she says.

“And remember, for many financial advisors, this won’t be the first time their world gets turned upside down. When the Financial Advisory and Intermediary Services [FAIS] Act came into effect in 2004, many thought it sounded the death knell for IFAs. But just like they survived FAIS, they’ll survive COFI. And just like Masthead helped its clients through FAIS, we’ll help them through COFI and Omni-CBR.”

Don’t pay heed to naysayers who believe that it will be impossible for IFAs to implement the proposed regulatory reforms, Joleen adds. “You started your business and built it up to where it is today – remember the reasons why you became an advisor. There will always be a need for independent financial advice. And Masthead can help IFAs through these changes by providing them with the necessary skills and expertise to adapt their resilience and risk management capabilities.

“The regulatory reforms are there to help advisors give the best possible advice and treat their customers fairly,” she adds. “This, in turn, will help them run sustainable, profitable businesses.”

MASTHEAD IS

A national supplier of risk management services to independent financial advisors and other licensed financial service providers (FSPs). Established in 2004, we help our clients overcome their risk management challenges so they can grow and thrive in an increasingly regulated industry. Providing professional guidance and practical support, our team of specialists is passionately committed to delivering tangible solutions.

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