collective insight
@finweek finweek finweekmagazine finweek^ 15 August 2019^23
The sector has been characterised by high fees, complex pricing structures and fee
arrangements that are often not aligned with the best interest of investors.
Signs confirming that you are dealing with a
registered financial services provider
- Do the marketing material and letters have proper,
professional layout and branding? - Are there obvious spelling mistakes, also in SMSs?
Beware! - Does the “from” email address look legitimate?
- Does the disclaimer show a registration number,
and numbers from the Financial Sector Conduct
Authority (FSCA)? For example, ABC Wealth is an
authorised financial services provider (FSP 1234) Reg
no 1998/123456/07. - Does their marketing material spell out what a
product can do for you, but also what it does not do? - Do they go out of their way to convey information
in plain, clear language? If they have to use difficult
terminology, do they explain it? - Do they clearly disclose all fees, also the fees that
they pay a financial adviser on your behalf?
- Do they warn you about the consequences of certain
actions, like not paying your premium? - Do they warn you what will happen if you don’t
disclose certain facts? - Do they go out of their way to avoid publishing
documents and disclaimers in small print? - Do they have a policy to protect your privacy and
your details, and do they explain it? - Is it easy to do business with the company, and is it
easy to get hold of them? - A fund fact sheet has to state that past performance
will not necessarily be repeated in future. - You are not allowed to give a company investment
money until you have filled out the application form
and they have checked your Financial Intelligence
Centre Act (Fica) information. (This red tape is
actually there to protect you!)- Companies must give you regular feedback on the
performance of your investment and publish contract
and regulatory information on its website that clients
can access at any time. - Companies have to tell you what their complaints
resolution processes are and give you the contact
details of the Ombud for Financial Services Providers
or Ombud for Long-term Insurers. These institutions
exist to protect consumers. - For even more peace of mind, also check whether
the company adheres to the Code for Responsible
Investing in South Africa (CRISA), the United Nations-
supported Principles for Responsible Investment
(PRI) initiative, or belongs to the International
Corporate Governance Network and the Association
for Savings and Investment South Africa (ASISA). ■
Piet van der Merwe is an ESG analyst at Momentum Asset
Management.
- Companies must give you regular feedback on the
for your immediate needs or now for future
needs, it is a larger-than-life decision. I bet most
investors out there wish they were equipped
with a pair of 3D glasses to see and appreciate
the full picture upon which their investment
decisions were made.
There are, however, some practical tips that
investors can use to identify the warning signs
as clear as if they were jumping right off the
pages of those glossy brochures.
- Verify
In the past, one of the strategies a discerning
investor could employ to verify the
credentials of a financial services institution
they’d never heard of, was to perform an
internet search for a company’s website or
even dial the listed phone number to check if
anyone answers the call. This is no longer an
effective safeguard, as these measures are
relatively simple for scammers to fabricate.
So where does our safeguard lie?
The Financial Advisory and Intermediary
Services (FAIS) Act is one of the most crucial
pieces of consumer legislation in SA. Its aim is
to regulate the rendering of financial services
to clients. One of the requirements is for each
representative of a financial services provider
(FSP) to be registered with the Financial
Sector Conduct Authority (FSCA) – the
industry watchdog.
This link https://bit.ly/2SKDpIZ to the
regulator’s website allows anyone to search
for the name of a financial services provider as
well as any of their representatives. Investors
can immediately verify whether the company
and the individual representative advising them
is indeed legally authorised and qualified to
do so. Investors can also verify if a particular
representative has been debarred as a
representative of an FSP, or not.
- Consider the source
Never ask a barber if you need a haircut! It’s
generally good practice to apply a certain
amount of healthy scepticism when venturing
into unfamiliar territory. A personal favourite
saying: consider the source.
Aside from the fairly obvious get-rich-
quick-schemes, one should keep an eye out
for the following red flags:
■ The promise of a high return with low or no
risk involved. It is impossible to significantly
exceed inflation-beating returns over any
time period without taking on risk. Any
promise to the contrary is suspicious.
■ Being offered a select opportunity that
is not available to the public. As much as
we would each love to believe that we have
fortuitously been the lucky recipient of a hot
tip of insider information – in reality it’s rather
unlikely and possibly even illegal.
■ A sense of urgency. Being placed under
time pressures to make a decision to invest.
It’s a potential attempt to reduce one’s ability
to make a rational, well-considered decision.
- Approach with caution
Some warning signs are less obvious than
others, but one should take similar caution when
faced with the following type of offers which are
becoming increasingly common: Eye-catching
advertisements for investment schemes
promising attractive investment returns of up
to 20% per annum or more. This should raise an
eyebrow. This is by all accounts an unrealistic
expectation. It would be a struggle to generate
such returns, especially in the current market
environment. - A free lunch
As far as I know there are no non-profit
organisations selling investment products or
services. If you are being sold a product that
promises no administration fees, for example,
it would be well worth interrogating what other
types of fees are being charged separately, and
the associated quantum of those fees. There is
no such thing as a free lunch, especially when
investment “experts” are keeping an eye on the
monies.
At the end of the day, the old adage rings
true – if it sounds and looks too good to be
true, take a closer look. It probably is. ■
Sohini Castille is a client investment specialist at Alexander
Forbes, with 12 years’ experience in the retirement fund industry.