Friday, December 21, 2012
THE INDEPENDENT FINANCIAL ADVISER AND THE ANC POLICY CONFERENCE IN MANGAUNG: DECEMBER 2012
THE INDEPENDENT FINANCIAL ADVISER AND THE ANC POLICY CONFERENCE IN MANGAUNG: DECEMBER 2012.
WHY THE SECOND TRANSITION IS DANGEROUS AND SHOULD BE RESISTED
This is not a political treatise.
Government remains committed to pursuing a revolutionary agenda 18 years into our new democracy. It is making noises to the effect that the mediated settlement achieved during 1990 to 1996, which culminated in the promulgation of our constitution, must now be regarded as merely transitory given the context of the time. As time changes and with it context, so does the need to adapt, manifest. The problem here is that the current context, which is used as motivation to move away from our constitutionally enshrined rights and the premises of economic and civil freedom on which it is built, is one of failure on the economic upliftment front – a failure almost entirely the ANC’s own doing! Government now says that the very factors so necessary to achieve political stability then, augurs against economic upliftment now. What is their answer? Greater state interference and control in all aspects of the economy; and in particular financial services because the savings are already there to be tapped into.
There are disconcerting signs of increasing government control in for example, the suggestion that retirement annuities below a certain capital value must be used only for compulsory purchased life annuities. This paternalistic approach borders on the fringe of qualitative aspects of financial planning – something in the domain of advisers and not government. There is renewed talk of prescribed assets. In the context of a socialist agenda in a developing economy, which is what our economy is, there will never be enough money generated through taxes to look after the poor. The result of government attempts to harvest additional sources of capital and revenue will be mediocre products for mediocre people and this will diminish the role of the IFA. A fundamental requirement for a happy and meaningful life is economic and civil freedom – and with this goes the responsibility for your own decisions. Government should not purport to take over that responsibility but should focus on creating an environment where people are adequately educated to understand what they are doing. Consumer protection without consumer education is meaningless and the program proposed by government [ignoring for this purpose the necessity for transformation which can and should be addressed in terms of the current constitutional context] keeps people dependent rather than making them free agents functioning fully in society.
There is much that can be done to avoid a scenario of totalitarianism, but we must act now. As knowledgeable members of civil society, we too must accept responsibility for our future, even if it means a bit of confrontation from time to time. By “we” I mean IFA’s other financial advisers and institutions – who are all too inclined to using veil tactics for fear of alienating government. The current veil tactic seems to be to channel discussion into the minutiae of the cost of regulation, fees vs. commission and a host of other issues which, whilst topical and close to our hearts, detract from the macro issue: consumers have lost faith in financial institutions and the manner in which they are regulated. No amount of regulation will fix this, but an increase in regulation will cause a further loss of confidence.
There are many reasons for this, ranging from the uncontrollable macro-economic to easily controllable public relations and managing perceptions. The primary question to be answered should not be how we are going to achieve a retirement regime where everyone can afford to retire (more or less), but rather how we fix the system so people will make those decisions for themselves voluntarily, based on their faith in the institutions. Mangaung will be a tipping point. The decisions made there will determine whether we will continue to have a vibrant capitalist financial planning environment or whether government will prescribe what is good and what not. We must do everything in our power to ensure that our concerns are voiced. It is not sufficient however to cry wolf without action. To this end, we must take steps, individually and collectively, to ensure that we have a workable solution. So, how could we prevent undue interference by government?
Make it known that we do not agree:
Individuals and collectives should use every opportunity possible to convey their message to as many people as possible. This is the only way to influence the decision makers at Mangaung at this stage.
Make it credible
Base your concerns on facts – and in particular on that which is already written down as policy statements. Moreover, provide alternative solutions by accepting responsibility for actions future and past.
Be proactive to restore faith by consumers
In this regard, we must remove the disputes between regulators and industry bodies from the public domain. Advisers, industry and regulators have an equal responsibility to do this. So-called independent and objective copywriters like Bruce Cameron should be silenced with a collective effort.
His style of negative sensationalism in the guise of consumer interest alone has done incalculable damage to the stability of the financial system by reference to its trustworthiness. It has nothing to do with freedom of speech, but everything to do with responsible commentary and it is time the regulators realize this as well.
Financial advisers must start expressing their value proposition not by reference to their earnings but by reference to the number of consumers they represent. This has more meaning and more political (voting) clout.
Product providers must acknowledge the power their money has to influence public opinion through advertising. For once, corporate greed should take a back seat in the interest of a greater good. Financial solutions are not the only solutions to the dilemmas facing our society today – in fact most financial solutions start life and remain aspirational, over ambitious and ultimately not sustainable because, in the mean-time, life happens. Responsible advertising will recognise this and offer financial solutions as part of a range of value based choices – not the only choice. Our consumers have been conned into believing that anything and everything of value must be expressed in financial terms. This is not so. Ask your IFA.
Create room for self-regulation
Regulators are encroaching on the qualitative aspects of financial advice and products. Their only role should be to ensure that the products offered are financially sound as are the companies that make them. The only way to curb the trend is to be pro-active with self-regulation. This could be achieved by developing tiered products ranging in complexity. As the complexity increases, so should the requirements of product providers towards those who wish to promote those products. Complaints will decrease because products are simpler on the one hand and advisers and consumers are equally matched in respect of their sophistication levels on the other. Fewer complaints cause less reason for intervention under the auspices of consumer protection.
Pass this along to a colleague – even if you are ambivalent. She may not be!
Involve your clients. They have as much at stake as you and there is strength in numbers.
Engage product suppliers for more responsible advertising to sway public opinion towards holistic solutions helping people to recognise that there is no shame in having to look at family for support when we live too long. It could happen to everyone, financial provision despite.
Enforce your rights and be an activist. This is not a debating contest, but concerns the future of our profession and the well-being of our clients. This is a watershed!
If you lack the individual will, join NAIFA and we will do it for you. Otherwise, we look forward to seeing you in the street, fighting for what is ours, shoulder to shoulder.
Chris Van Der Walt
Chairman of NAIFA (National Association of Indipendent Financial Advisors)
9 November 2012
If you align withe these sentiments and are not already a NAIFA member, complete and submit the attached application form to become a participator in the future decisions of your business and the industry.
Visit the NAIFA website at http://www.naifa.co.za/
In the News
Property syndication rules coming soon - 13 February
Pretoria - The trade and industry department will soon publish draft regulations to control the conduct of companies involved in public property syndication investments.
Ebrahim Mohamed, the chief director of the office of consumer protection in the department's consumer and corporate regulation division, said on Friday that the draft regulations would be published in the Government Gazette, allowing 30 days for public comment.
The department hoped to publish the final regulations by the end of March. Attempts to clean up conduct in the industry follow an investigation by the department's consumer affairs committee into property syndication scams in October 2004.
Mohamed said in 2004 that the syndicates were being accused of defrauding unsuspecting and inexperienced investors. He warned the public and small investors to be careful of public property syndication scams.
A public property syndication comprises a group of investors who pool their funds to invest in a company whose sole asset is a commercial, retail or industrial property.
These investors then share in the profits and losses, and enjoy the benefits of net rental growth through a share of income, together with any future capital growth that may be reflected by the increased value of shares.
But Mohamed said it was relatively easy to mislead consumers when marketing public property syndications.
"The property could ... be sold at an inflated price ... or investors could be left in the dark regarding the terms of the rental agreements."
Sharemax Investments is one of the largest companies to specialise in unlisted commercial property investments, despite receiving bad publicity in the past.
Willie Botha, Sharemax's managing director, said it had successfully launched 29 projects since 1999 and managed more than 15 000 property investors' assets worth more than R1.5 million.
Botha stressed that all of Sharemax's projects were properly registered with the registrar of companies before they were offered to the public.
He added that the revival of the property market had opened the door to excellent growth for Sharemax's investors. Botha said there was demand from certain listed and other companies to purchase several properties in Sharemax portfolio.
He said the first successful transaction of this kind was when an offer of R46.5 million was accepted for the Groenkloof Plaza shopping centre in Pretoria, which was registered in the name of its shareholders in May 2003 for R35.85 million.
The combined gross return for the investors in Groenkloof Plaza was 58.51 percent over two years and eight months.
Botha said offers on 19 other buildings in Sharemax's portfolio were being considered. They would provide additional capital growth of more than R200 million to its investment clients.
Business Report website
Overpricing stifles property - 26 January
Superinflated asking prices flattened holiday home sales in Port Elizabeth, St Francis Bay and Jeffreys Bay this past season.
Local estate agents report the quietest festive trading in some years in spite of good viewing numbers and follow up interest, with many of the fewer than normal offers to purchase faltering on price agreement between the two parties, according to a market survey.
John Cooper, a franchise holder in the three areas, reports the only real interest surfacing in Jeffreys Bay vacant stands where the CEI local franchise recorded 19 stand sales, all to non residents, and only one existing home transaction. Average selling price of stands was around R350 000.
Activity in the normally equally popular, but pricier St Francis Bay, according to Cooper was "very quiet" also as a result of the shorter holiday season and possibly the crisis in the supply of petrol at that time.
One tendered offer of R1.5m to purchase a R1.6m home was not only rejected by the seller but its price in response to the interest was immediately bumped up to R1.7m.
An owner broker in Port Elizabeth also reports a slower than normal market. December sales for the agency of 24 units was about half of a normal month with a high portion being generated by company transfers.
Potgieter also sees good movement in the niche markets, such as the Walmer golfing estates, particularly from black and Asian buyers purchasing in the price range of R2.5m.
Cooper senses a market improvement by April when he expects sellers to come to terms that market bottlenecks are a result of their own making.
Given the recent and still to come industrial development in Port Elizabeth and Mossel Bay and the region's cost of living and lower crime rate, Cooper is forecasting strong emigration into the area during the next four years from inland regions further motivated by the region supporting some of the lowest coastal property prices in the country.
"It's big enough to be a city with good facilities and commensurate opportunity, but still small enough for people to feel comfortable."