How to ensure your financial service provider is legit

It is very important to ensure that your financial service provider is legitimate, especially after the recent crypto crash that coincided with crypto being declared a financial product in South Africa.

This move confirms that the authorities are acknowledging the role and importance of crypto in our economy, but with progress also comes risk and that is why the South African Association of Treasury Advisors (SAATA) has advice for those considering a financial services purchase,” says Richard Beddow of SAATA.

“If you take advice or consider buying a financial investment, whether it is crypto assets, foreign exchange, insurance or a retirement product, it is vital to ensure that you are dealing with an authorised financial services provider.”

An authorised financial services provider (FSP) is bound by professional and regulatory stipulations put in place specifically to safeguard consumers. Should anything go wrong, such as an exaggerated investment return or when an FSP’s representative behaves unethically, the consumer has recourse.

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Requirements for qualification as an authorised FSP

If someone or a company want to qualify as an authorised FSP, they must:

• Abide by certain codes of ethics, standards and conduct, including transparency and Treating Customers Fairly (TCF).
• Comply with licensing stipulations and requirements.
• Have sufficient professional liability insurance.
• Be financially sound.
• Do continuous professional training.
• Be qualified to a certain level.
• Have commensurate industry experience.

Authorised FSPs include treasury advisors or treasury outsourcing companies, insurers, collective investment schemes (CIS), credit rating agencies, retirement funds and over the counter (OTC) derivatives providers. Each of these subsections of the financial services industry has its own FSP license sub-category and representative body.

Beddow says, for example, well over 80% of foreign exchange FSPs belong to the SAATA, which was formed in 2019 to act on their behalf to ensure that all members offer a better solution to their clients and that treasury advisors comply with relevant legislation and regulations, as well as the Global FX code of ethics, standards and conduct.

“For your own safety and peace of mind, it is worth ensuring that whoever you are buying a financial product from is governed by these standards. The best way to find out is to ask.”

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Questions to ask your FSP

He says these are the questions you should ask from your FSP:

• How are you regulated?
• Do you belong to an industry body and how can I verify that you do?
• Do you have the necessary professional liability insurance in place?
• Can I see your statutory disclosure form?

A statutory disclosure lays out particulars, such as representatives’ status in their company, personal and office contact details, qualifications and membership of industry bodies, whether they have professional indemnity insurance and information regarding their fees, as well as information about your rights and procedures to follow for complaints. Regulated FSPs are required to give you with this disclosure.

“If the person or entity you are dealing with cannot provide you with these answers and documentation, find someone who can,” says Beddow. “It’s your right.”

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When it comes to crypto

The Financial Sector Conduct Authority (FSCA) recently declared crypto assets a financial product, an important step towards enhancing the monitoring and compliance of crypto transactions, but it is important that consumers realise that, for now, there are still risks when trading or investing in crypto, Beddow says.

“These risks include an unclear path on the requirements for a person offering crypto-related products and services to become fully regulated, the relaxation of certain standards for now and most importantly, no requirement to have the necessary insurance in place to protect clients’ funds should something go wrong. Recent events in the market show that things certainly can go wrong.”

Beddow says this raises the concern that South Africans might buy a high-risk investment product or take advice from someone or an entity that is not licensed, not insured and possibly not even properly qualified.

“Consumers must be aware that, until the legislation has been finalised crypto service providers are not regulated, which means that unless consumers are dealing with an authorised FSP, they have little to no protection or recourse.”

Buntu Bam, certified financial planner at Alexander Forbes, adds that you must consider a number of factors when looking for a trusted person to act as your financial advisor. The following pointers will help you find a financial service provider you can relate to:

Professionalism

Accredited financial planners spend many hours on their continuous professional development and this means that they are there to give you the best advice based on your needs, rather than pushing products on you. Advice should be appropriate, consistent and objective. The financial planner should display a depth of knowledge when consulting with you.

Boundaries

When choosing a financial planner, you must understand what their mandate is. If you are looking for investment advice, can they help you to understand your risk profile, deliver insights into current market conditions and recommend appropriate investments when positioning your portfolio? Likewise, what are they not licensed to do for you, such as being your tax adviser or short-term broker? Agree on how and when your review will take place and what the service fees are. Knowing these factors up front can make the engagement stress free.

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Accountability

Engaging with a financial planner does not exonerate you from making decisions. Economies go through peaks and troughs, affecting your retirement and discretionary savings depending on the investment portfolio. Financial planners have no control over this and in many instances cannot be held accountable. Abdicating decision-making is not a wise call because after all, you are the sole beneficiary of the outcome. It is better to partner with a financial planner who will help you maintain the course or redirect you with new information. Sharing life-changing circumstances with your financial planner will better inform their recommendations.

Trust

Part of building a long and trusting relationship is having open and honest conversations. You should be able to talk to the financial planner about your family and personal financial issues, knowing that these matters are kept confidential. The financial planner should respect your story and those of their other clients. If they openly discuss matters of clients with you, that should be a worrying factor. The financial services industry is bound by the Protection of Personal Information Act, which prohibits financial planners from sharing information that is not in the normal course of business.

Integrity

Certified financial planners are registered members of the Financial Planning Institute (FPI) of South Africa and subscribe to a code of ethics. Adherence to the principle of integrity requires FPI members to do the right thing fairly and consistently in the best interests of their clients, even when no one is watching or will find out.

Examples of integrity are keeping promises, standing up for what is ethically acceptable beyond own self-interest, acting on principles that go beyond mere legal compliance, making recommendations as if every decision and action would be open to public scrutiny and continuously enhancing the credibility of and trust in the profession.

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Be on the same wave length

Should you have any queries on your finances, your financial planner must ensure you have enough information to make informed decisions. Your financial planner needs to be a great listener to understand your objectives.

“The financial journey is a long and important one. You might face many obstacles such as divorce, troubled children, unexpected illnesses or the death of a family member. You might not have the necessary knowledge and skills to navigate these hurdles but having an empathetic financial planner who understands your situation, will certainly benefit you in troubled times,” Bam says.