Uncompromised Independent

COMPLIANCE BRIEF

Dear Moonstone Compliance Client

A belated new year's greeting from all at Moonstone. We trust that the rest of the year will be a major improvement on the first month, particularly from a power perspective and its impact on your operational ability. While the FAIS Act requires that certain minimum facilities should be in place, it did not take into account Eskom's ability to render these useless.

On a more positive note, it is refreshing to note that the regulators are making findings against parties other than financial advisors. The last three determinations by the FAIS Ombud found against the complainant (read client) as FSP's are coming to terms with what is expected of them.

Unfortunately there are still a fair number of people who believe that ignorance is bliss. A recent article in the FSB newsletter stated that less than 3 percent of respondents to a survey had actually read the FAIS Act and the general Code of Conduct. This is tantamount to playing Russian roulette with five bullets in the chamber, particularly if you also have no back-up in the form of some kind of compliance support.

Ons vertrou dat die artikels in hierdie maand se nuusbrief vir u van waarde sal wees, maar wil ook baie mooi vra of u nie die klippies wat in u skoen is wat met voldoening te make het, met ons wil deel nie? Ons kan u slegs help as ons daarvan weet. U is welkom om dit direk met ons te deel by info@moonstoneinfo.com.

Ander goeie nuus is dat ons hard aan die werk is om ons eerste reeks seminare vir u as Moonstone Compliance kliënt te reël. Ons het 'n opname gedoen onder makelaars en voldoeningsbeamptes en verskaf binnekort meer inligting hieroor.

Please feel very free to provide any feedback on the articles hereunder or any other topic that can help us improve our service to you.

The editorial staff.

Practical Advice on Giving Advice

Read More

Praktiese Raad oor die gee van Advies

Wat sê die FAIS Wet oor Advies?

Read More

Through the Looking Glass

Some thoughts on training needs and FSB reports in the year ahead.

Read More

In my Kristalbal

Ons kyk na wat die jaar mag inhou in terme van opleiding en verslae aan die reguleerder.

Read More 

T: +27 21 880 0688 | F: +27 21 880 0699
info@moonstoneinfo.com
www.moonstoneinfo.com
P.O. Box 12662, Die Boord, Stellenbosch, 7613, Republic of South Africa

Practical Advice on Giving Advice

It is quite understandable that the advice provided by FSP’s has often been the subject of the determinations of the FAIS Ombud. Complaints arising from alleged wrong, incomplete of even no advice, formed the basis of most complaints landing on the Ombud’s desk.

The majority of Category I licence brokers are authorised to provide both advice and intermediary services, having convinced the FSB that they have sufficient experience to provide both of these types of services to the general public. However, most of us are under the impression that we earn a living by providing advice on financial products to clients and do not realise that the intermediary services that we render in the process may also lead to client complaints. This is a separate subject for discussion on another occasion. 

From the above it is evident that it makes a lot of business sense to take proper notice of what the legislation that regulates the financial services industry has to say about the advice process, and then comply with it. 

The fundamental principle in the rendering of financial advice is reflected in section 2 of the General Code of Conduct. Section 2 provides that an FSP must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry. It may sound like flowery rhetoric with pretty ordinary meanings but many FSP’s against whom the FAIS have found in his determinations, have already experienced the deeper meaning of this provision to their own detriment.  

What does “advice” mean ? It may sound superfluous asking this question but it can do no harm to consider again that, whereas advice is in essence information, it is not limited to informing the client about the financial products that are available to him/her. It is always coupled to the requirement that the information must be accompanied by clear guidance from and recommendations by the broker concerning what type of financial product or what specific product is most appropriate for his/her specific needs. Any FSP who is subjected to advice risk simply cannot afford to ignore the requirements for a correct and complete advice-giving procedure. If your advice rendering or procedure is of sub-standard quality in a certain transaction, the consequences thereof may only catch up with you at a later stage when the client lays a complaint with the FAIS Ombud. 

In terms of Section 8 of Part VII of the General Code of Conduct which specifically deals with the furnishing of advice, the following guidelines should always be followed before advice is rendered to the client in order to ensure the suitability thereof: 

• All reasonable steps should be taken by the broker to seek from the client appropriate and available information regarding his/her financial situation, financial product experience and objectives to enable the broker to provide the client with appropriate advice;
• On the strength of the information referred to above, the broker is required to conduct an analysis for purposes of the advice. Take note that no specific format or procedure is prescribed with regard to such a financial analysis.
• The financial product/s that will be appropriate to the client’s risk profile and financial needs, must be identified by the broker, subject to the limitations imposed on him/her under the Act or any contractual arrangement. The broker should therefore restrict himself during the process of identifying appropriate products, to products that he has been authorised to render advice on. For example, if he is not authorised to sell unit trusts but only Long Term Insurance products, he must restrict himself to the last-mentioned product types.

Consequently the broker must take reasonable steps to ensure that the client fully understands the advice rendered to him/her and is in a position to make an informed decision himself/herself. 

Section 9 of the Code of Conduct deals with the advice record aspect. The FSP is legally obliged to maintain a record of the advice furnished to a client as provided for in section 8 of the General Code of Conduct, provided that such advice, to the knowledge of the broker, gave rise to the conclusion of a transaction or contract in respect of a financial product by or on behalf of the client and as a result of the advice furnished by the broker. 

The record of advice must clearly reflect the basis on which the advice was given and must always contain the following important components: 

• A short summary of the information and material on which the advice was based;
• All the financial products which were considered;
• The financial product/s recommended with an explanation of why the specific product/s were selected, is or are likely to satisfy the client’s identified needs and objectives;
• The broker is obliged in terms of section 9(2) of the General Code of Conduct to provide a client with a written copy of the advice record.

It is also important to note that a specific format is not prescribed for the record of advice.  It does not really matter what the document looks like, it is the content thereof that will determine whether it is appropriate. 

It is undoubtedly so, that, if a broker adheres to the stipulations about the advice-giving process and record-keeping thereof at all times,  he/she will to a very large extent be able to effectively control the inherent risk that is part and parcel of any advice-giving business. In such circumstances the FAIS Ombud will also find it a lot easier to determine in favour of a broker when a complaint that relates to advice, is filed.

Praktiese Raad oor die gee van Advies

Dit is opvallend dat "advies" deur die finansiële diensverskaffer (FDV) een van die aspekte was wat dikwels die onderwerp van die FAIS Ombud se beslissings was. Klagtes van kliënte wat ontstaan het as gevolg van beweerde  gebrekkige, verkeerde of selfs geen advies nie het al in die Ombud se kantoor geland. Verreweg die meeste Kategorie I lisensie makelaars is vir beide die lewering van Advies- en Intermediêre dienste gemagtig omrede hulle die FSB tevrede gestel  het dat hulle oor voldoende ondervinding beskik  om beide tipe dienste aan die publiek te kan lewer.  Die feit is egter dat die meeste van die makelaars hulle inkomste verdien deurdat hulle op sterkte van hulle kundigheid advies oor finansiële produkte verskaf aan kliënte.  Baie dink waarskynlik nie so daaraan dat die intermediêre dienste wat hulle in die proses lewer ook kan lei tot kliënt klagtes nie. Dit is egter ‘n  onderwerp vir ‘n ander dag. 

Inaggenome bostaande opmerkings maak dit goeie besigheidsin vir enige makelaar by wie die lewering van finansiële advies van primere belang is om kennis te neem van wat daaromtrent bepaal word in die wetgewing wat die finansiële dienste bedryf reguleer en om daaraan te voldoen.  

Die grondliggende beginsel in die lewering van finansiële advies word weergegee in artikel 2 van die Algemene Gedragskode van FAIS wat bepaal dat ‘n FDV te alle tye finansiële dienste eerlik, billik, met die nodige vaardigheid, sorg en toewyding en in die belang van kliënte en die integriteit van die finansiële dienste bedryf, moet lewer. Dit mag klink soos ‘n klomp mooi woorde met taamlike breë betekenis, maar die dieperliggende betekenis daarvan het sommige FDV’s teen wie die FAIS Ombud alreeds beslissings gemaak het, te laat en tot hulle  nadeel ervaar.  

Wat beteken “advies” ? Dit klink dalk oorbodig om die vraag te vra maar dit kan geen kwaad doen nie om  weer daaraan te dink dat advies uiteraard inligting is, maar dit is nie slegs om die kliënt in te lig  oor wat die finansiële produkte is wat beskikbaar is vir hom/haar nie.  Dit is gekoppel aan die vereiste dat die inligting gepaard moet gaan met leiding  deur en aanbeveling van die makelaar oor watter tipe finansiële produk of spesifieke produk, die geskiktste is vir sy/haar besondere behoeftes. Enige FDV wat onderhewig is aan die risiko wat die die lewering van advies inhou kan dit  eenvoudig nie bekostig om die noodsaaklikheid van ‘n korrekte en volledige advies prosedure ooit af te skeep nie. As jou advies lewering of prosedure van sub-standaard gehalte is in ‘n sekere transaksie, mag die gevolge daarvan jou later inhaal wanneer ‘n kliënt se klagte by die FAIS Ombud land. 

In terme van artikel 8 van Afdeling VII van die Algemene Gedragskode wat spesifiek handel oor die onderwerp van advies lewering in die finansiële dienste bedryf, moet die volgende duidelike riglyne altyd gevolg word alvorens die kliënt met advies bedien word, ten einde die geskiktheid daarvan te probeer verseker: 

• Alle redelike  stappe moet deur die makelaar geneem word ten einde van die kliënt gepaste en beskikbare inligting rakende sy finansiële posisie, sy finansiële produk kennis en sy doelwiitte te verkry sodat die makelaar in staat kan wees om die kliënt met gepaste advies te bedien.
• Op grond van die inligting hierbo na verwys moet die makelaar ‘n finansiële analise doen met die oog op die advies wat hy/sy moet lewer. Let daarop dat daar nie voorgeskryf word dat so analise in ‘n bepaalde formaat moet wees of ‘n spesifieke prosedure behels nie.
• Die finansiële produk/te wat volgens die makelaar geskik is vir die kliënt se risiko profiel en finansiële behoeftes, moet geïdentifiseer word, onderhewig aan die beperkinge waaraan die makelaar onderhewig mag  wees in terme van die Wet of enige kontraktuele reëling. Die makelaar moet hom dus beperk tydens sy identifisering van ‘n geskikte produk/te,  tot produkte wat hy gemagtig is om oor advies te gee. Indien hy byvoorbeeld nie gemagtig is om effekte-trusts te bemark nie maar slegs Langtermyn versekeringsprodukte, moet hy hom beperk tot laasgenoemde.

Vervolgens moet die makelaar alle redelike moontlike stappe neem sodat verseker kan word dat die kliënt die advies wat aan hom/haar gelewer word ten volle verstaan en derhalwe in ‘n posisie is om self ‘n ingeligte besluit te kan neem.

Artikel 9 van die Gedragskode handel oor die advies rekord aspek. Die FDV is wetlik verplig om rekord te hou van die advies wat hy/ sy aan ‘n kliënt gelewer het in ooreenstemming met die voorskrifte van artikel 8 van die Algemene Gedragskode, indien sodanige advies volgens die kennis van die makelaar, tot ‘n transaksie of die sluiting van ‘n kontrak ten opsigte van ‘n finansiële produk gelei het deur of namens die kliënt, en voortspruitend uit die advies wat die makelaar verskaf het.

Die rekord van advies moet duidelik die basis reflekteer waarop die advies berus, en moet altyd die volgende belangrike komponente bevat: 

• ‘n Kort opsomming van die inligting en materiaal waarop die makelaar staatgemaak het  om die advies te verskaf;
• Al die finansiële produkte wat die makelaar oorweeg het;
• Die finansiële produk/te wat uiteindelik aanbeveel was saam met ‘n verduideliking waarom die spesifieke produk/te wat gekies was, die kliënt se geidentifiseerde behoeftes en finansiële doelwitte sal of behoort te bevredig.
• Die makelaar is verplig in terme van artikel 9(2) van die Algemene Gedragskode om aan die kliënt ‘n skriftelike afskrif van die rekord van advies te gee.

Dis belangrik om ook daarop te let dat daar nie ‘n bepaalde formaat vir ‘n advies rekord voorgeskryf word nie. Dit maak nie regtig saak hoe die dokument daar uitsien nie, dit is die inhoud daarvan wat bepaal of dit geskik is.

Daar is geen twyfel dat indien ‘n makelaar te alle tye die voorskrifte rakende die adviesgewingsproses en rekordhouding daarvan volg, hy tot ‘n baie groot mate die inherente risiko wat die besigheid van adviesgewing inhou, effektief kan beheer. Die FAIS Ombud sal ook makliker ten gunste van so ‘n makelaar beslis in geval van ‘n klagte wat verband hou met die advies wat hy gegee het.

Quip for the Week:

The third woman has observed all this and, not wanting to be chained for all eternity to an ugly man, is very, VERY careful where she steps.
She manages to go months without stepping on any ducks, but one day St. Peter comes up to her with the most handsome man she has ever laid eyes on .. very tall, long eyelashes, muscular, and thin.
St. Peter chains them together without saying a word.
The happy woman says, "I wonder what I did to deserve being chained to you for all of eternity?"  
The guy says, "I don't know about you, but I stepped on a duck!"

Guidelines on Risk Management

Now that the dust has settled around those futile New Year’s resolutions it is time to look realistically at what one can expect in the year ahead.

The inevitability of death and taxes has unfortunately acquired a third partner in the form of FAIS Compliance, be it in the form of risk management in your business or having to report on this to the FSB via the submission of financial statements or the annual report.

The financial status of your business is but one aspect of the Fit and Proper requirements used by the regulator to assess your ability to do business in the prescribed manner. For many FSP’s December 2008 is also the “final” date for obtaining the required training credits. But is it this really the final date?

In typical SA fashion the training credits deadline kept moving forward, just as did the goal posts. You may recall that there was an abortive “once-off” recognition of prior learning (RPL) which was then extended for a year, replaced by a far more strenuous training requirement which, in turn, was again replaced by a new RPL. Somewhere in between we were thrown off balance when the powers that be started cautioning us against hunting credits as the so-called “Full Qualification” was the next goal in the pipeline.

No wonder many FSP’s did nothing; how were they supposed to spend valuable production time chasing goals that were constantly changing?

The anomaly that of course persisted throughout all the variants of credit hunting was that many FSPs advised clients on business disciplines that they were not accredited for. If you had 60 credits for long-term category C you could happily go ahead and advise on short-term and healthcare without any concern about the regulator taking you to task about acting outside your mandate, provided that these categories appeared on your FSB license.

If one looks at what the FAIS Act aims to achieve, it is fairly obvious that this situation can not be tolerated much longer, so expect to hear sooner rather than later that you will have to have some proof of your ability and knowledge in respect of every category of business in which you provide advice and intermediary services.

This is particularly bad news for those FSP’s who strive to provide a one-stop service for all their clients’ financial needs. The advisor in the rural areas often has to resort to multi-tasking as the number of available clients is limited.

While there are alternatives such as outsourcing certain of these categories to accredited service providers, it is not the solution of preference for those who regard their relationship with their clients as more than just a business transaction.

On the positive side, one looks forward to the day when the annual FSB report provides for meaningful feedback on specific business categories. The current one-size-fits-all document, which appears to be modeled on investment type business, makes it difficult for those conducting short-term or healthcare business to answer correctly. Aspects such as the needs analysis differ vastly between the business categories. Little provision for this was made in the Act which of necessity has to be fairly general, and this has also manifested itself in the annual report.

While the crystal ball appears to contain both good and bad news, it is reassuring for you as a Moonstone Compliance client to know that you can focus on your core business while we do the reconnaissance to enable you to prepare accordingly. We make it our mission to become involved in forums that determine your future.

Our future is directly dependent on your survival.

In my Kristalbal

Nou dat ons die Nuwejaarsvoornemens weer veilig in watte toegerol en teruggepak het in die kas, is dit tyd om met oop oë te kyk na wat vir ons kan verwag in die jaar wat voorlê.

Die enigste twee onvermydelike gebeurtenisse, naamlik dood en belasting, het ‘n derde vennoot bygekry in die vorm van FAIS Voldoening; of dit nou risikobestuur in jou onderneming is of die rapportering daarvan aan die FSB deur middel van finansiële state of die jaarlikse verslag.

Die finansiële status van jou onderneming is maar een aspek van die “Fit and Proper” vereistes wat deur die reguleerder gebruik word om jou vermoë te toets om jou  besigheid te kan bedryf op die voorgeskrewe wyse. Vir baie makelaars is Desember 2008 die jongste finale datum waarteen hulle die vereiste opleidingskrediete moet bekom. Maar is dit regtig die finale “finale” datum?

Soos ons nou al in Suid-Afrika gewoond geraak het, is die sperdatum vir opleidingskrediete gereeld vorentoe geskuif, saam met die doelpale. Soos julle sal onthou was daar ‘n abortiewe “eenmalige” geleentheid om erkenning van vorige opleiding te bekom (RPL) wat uiteindelik vir meer as ‘n jaar verleng was. Dié plan is vervang deur ‘n baie meer komplekse stel vereistes, en sedert verlede jaar is dié weer vervang deur ‘n nuwe RPL. Tussendeur is ons almal nog verder van balans af gegooi toe die opleidingsowerhede begin het om ons te waarsku teen krediete aangesien die “Vol Kwalifikasie” in die pyplyn was.

Geen wonder ‘n groot meerderheid van die FDV’s het niks gedoen nie. Hoekom moes hulle waardevolle produksietyd afstaan aan doelwitte wat geduring verander? Dit het so erg geword dat selfs opleidingsinstansies onttrek het om eers te kyk wat gaan gebeur.

Die anomalie agter die hele “krediete jag” was natuurlik dat baie FDV’s hul kliënte geadviseer het oor besigheidsdissiplines waarvoor hulle nie werklik geakkrediteer was nie.  Indien ’n makelaar 60 krediete gehad het vir langtermyn kategorie C kon hy ongehinderd voortgaan om advies te lewer oor kort termyn en gesondheidsorg sonder enige gevaar dat die reguleerder hom gaan aanspreek omdat hy optree buite sy mandaat. Die enigste vereiste was dat die kategorieë op jou lisensie moes wees.

Wanneer daar gekyk word na die doel van die FAIS Wet, is dit duidelik dat hierdie situasie nie langer so kan voortduur nie. Berei jouself nou al voor vir die moontlikheid dat almal in die toekoms bewys sal moet kan lewer van hulle vermoë en kennis in elke lisensiekatergorie waarin hulle advies en intermediëre dienste lewer.

Dit is veral slegte nuus vir die FDV’s wat daarna strewe om ‘n een-stop diens te lewer vir al die finansiële behoeftes van hulle kliënte.  Die adviseurs in die platteland moet dikwels  veelvuldige produkte bemark omdat die getal beskikbare kliënte baie beperk is.

Alhoewel daar alternatiewe bestaan, soos om sekere van die kategorieë uit te kontrakteer na geakkrediteerde diensverskaffers, is dit nie die voorkeur oplossing vir diegene wat hulle verhouding met hulle kliënte as meer as net ’n besigheidstransaksie sien nie.

Op ‘n positiewe noot hoop ons vir die dag wanneer die jaarlikse FSB verslag sal voorsiening maak vir betekenisvolle terugvoer op sekere besigheidskategorieë.  Die huidige dokument, wat lyk of dit ontwerp is vir beleggingsbesighede, maak dit moelik vir makelaars wat spesialiseer in kort termyn, pensioenfondse of gesondheidsorg om sinvolle antwoorde te kan verskaf.  Praktiese aspekte soos behoeftebepaling verskil hemelsbreed tussen die verskillende besigheidskategorieë.  Bitter min voorsiening is hiervoor gemaak in die Wetgewing.  Die wetgewer was genoodsaak om redelik algemene bepalings in die Wet weer te gee, soos ook blyk uit die jaarlikse verslag. Hopelik sal daar nou onderskeid getref word waar prakties  nodig.

Alhoewel die kristalbal goeie en slegte nuus inhou, is dit gerusstellend dat, as ‘n Moonstone Compliance kliënt, u met ‘n geruste hart kan fokus op u kernbesigheid terwyl ons die voetwerk doen om u voor te berei op moontlike veranderinge wat kan plaasvind.

Ons maak dit ook ons besigheid om betrokke te raak by forums waar aangeleenthede wat u besigheid raak, bespreek word.

 Ons toekoms is uiteraard direk gekoppel aan u oorlewing.