Are Corporates in SA’s Financial Planning Industry at war with themselves?

Corporate Law Center

The Financial Planning industry in South Africa is busy undergoing big changes. The purpose of these changes is to professionalise the industry for the ultimate benefit of the man in the street. Proper Financial advice is still too scarce in an industry that is driven by Financial Planning corporates and Life Companies who seek profits for shareholders often at the cost of their clients.

While I understand that a business must make money for its shareholders, surely it should also be cognisant of its clients' needs and welfare? Ask any corporate and they will tell you that their goal is to serve their clientele, but is it? Do they even know who their clients are, apart from their demographics? When designing a new product is it about outdoing competitors, taking advantage of an Actuarial anomaly or honestly serving their clients? Let’s focus on Corporate Financial Planning businesses.

The question I ask myself is do Corporate Financial Planning businesses in South Africa really give individual members of the public good, honest and fair Financial planning advice, and can they do a better job of this than a smaller Financial Planning practice?

Let’s look at three local examples, we will call them A, B and C.

Corporate A has been a household name in the industry for many years. Their focus has always been the administration of pension and provident funds and flowing from this financial planning for individual members of these funds. I remember years ago the top brokers in this business had legendary status and these people made buckets of money! As this business sought to become more profitable for its shareholders and every time a new “boss” took over at the helm, their Financial Planners remuneration packages were cut more and more to the point where currently they have fallen way behind smaller individual planners in regard to the income they earn. To maintain their modest income, they are required to look after hundreds of clients and hundreds of millions of AUM. These poor planners are also so tied up with restraints etc that it is almost impossible for them to leave and start out on their own. Recently this corporate opened their full suite of products to any Financial Planner who may want to partner with them, further making their own planners less unique and competitive.

Corporate B has been around for a few years and offers personal Financial Planning and everything linked such as the administration of estates, share portfolio’s and they run their own funds as well. They market aggressively and especially target older clients hence they sponsor almost every bowls club in the country! They get member lists from these clubs at bowls tournaments and pursue these individuals for their retirement funds. They run a sales driven team of planners who have various targets that need to be met monthly such as seeing 25 new prospects a month who only qualify as a prospect if they have upwards of R500,000 to invest. They also must monthly review a minimum number of clients. As their planners meet their targets, the target gets changed making it almost impossible for the planners to earn a decent income. The staff turnover in this corporate must be the highest in the industry. They also want their planners to support their own funds which are so heavily loaded with charges and fees that their returns are well below par.

Company C positions itself as a specialist wealth planning business for high net worth clients. They have grown through the merging and purchasing of Financial Planning businesses and asset books. Planners have big targets to reach to be able to earn a market related income as top financial planners. Once a Financial Planning business is bought, the purchased book is churned into their own funds which also have many levels of fees, this is done regardless of what is best for the clients. Due to this many planner from the bought Financial Planning businesses leave due to moral and income concerns.

So, if I look at these three examples it seems clear to me that as much as the Financial Planners (I personally know many who are great people) in these corporate Financial Planning businesses want to do the right thing and want to do good work, they cannot if they want to keep their jobs and/or earn the incomes they should and could if they were independent. Time and deliverables simply do not allow it.

It is sad that Financial Planning businesses who are household names and who should be steering the way in our industry are being run by businessmen who have never sat across the table from a real client. They have never discussed that client’s family, their challenges, their dreams and opportunities etc.

Is not the real crime here that the clients of these Financial Planning corporates think they are getting great financial advice whereas the truth is they could be getting a lot more if the Planner they were dealing with was enabled by his or her employer to just do their job well and be paid fairly for doing so?

I believe the writing is on the wall for these types of Financial Planning corporates. No matter how they disguise it, their only motive for business is shareholder profit and currently this at the expense of their clients. My advice if you are a client dealing with a business like this is to look around at smaller, reputable Financial Planning businesses, trust me, you will be surprised at what more you can get for what you are paying.