The Financial Advisory and Intermediary Services (Fais) Act cannot function as a one-man-fits-all legislation across the financial services industry, says Carstens Mphelo, a director at Metropolitan Asset Managers.
Although industry authorities have established a code of conduct applicable to all individuals or organisations rendering financial advisory services, and aimed at protecting investors from unscrupulous advisers, financial services regulators must take into account that different sectors in the industry operate differently, he says.
“For Fais to succeed, the Financial Services Board, in consultation with industry players, will need to write industry-specific subordinate legislation that take into account the dynamics of the different industries. What works for one sector of the financial services industry, for example life assurance, does not necessarily work for the asset management sector,” Mphelo states.
He says his concern is that Fais, in its current form, will result in confusion in the asset management industry where asset managers work alongside independent asset consultants.
“Before Fais, the responsibility of conducting a financial needs analysis for clients, for example, lay with the independent asset consultants. With the introduction of Fais, asset managers will also have to compile a comprehensive financial needs analysis for the same clients, meaning the same process will be performed twice.”
This would result in higher costs for clients, he says. To curb the higher costs and keep business attractive to investors, he said asset managers would be forced to employ asset consultants in-house, thereby cutting out the middleman. He explains, however, that this would not be the best solution, as it may result in a conflict of interest, as consultants would no longer be objective outsiders.
“Pension-fund trustees and members need the comfort of knowing that they get objective and unbiased advice from asset consultants. The advice includes matters relating to the assessment and employment of asset managers. This objectivity may be compromised when asset consultants are tied to or employed by asset managers.”
He proposes that asset managers come together and thrash out ideas that would assist the Financial Services Board to formulate a code of conduct specific to their industry. — I-Net Bridge