When it comes to the business of wealth creation, one rarely has to look far to uncover the vices of greed and exploitation – usually under a thin guise of charm and sales ingenuity. It is argued that regulation of advice and financial products only creates cost and red tape. However, looking at some of the fines recently issued around the world, I would rather have a financial watchdog on my side when I make a decision and subsequently seek recourse.
I wrote recently of South Africa’s regulators looking for greater transparency in costs and fees; of the man-in-the-street supported by consumer education beginning to understand the difference between commission and fees; and of the growing debate on how to pay for financial planning advice. But do regulators have any teeth to act against individuals or institutions who give bad or fraudulent advice, and are the associated costs and fees really worth the advice? To put this into perspective, let’s look at some hefty fines that have been imposed over the past two years.
The UK’s Financial Conduct Authority (FCA) issued fines of £474 138 738 in 2013, including £28 038 800 to Lloyds TSB Bank plc and Bank of Scotland plc for serious failings in the systems and controls governing financial incentives to sales staff. The tally to September 2014 was
£313 025 800, including £18 643 000 to Invesco Asset Management Limited and Invesco Fund Managers Limited for not complying with investment limits designed to protect consumers by limiting their exposure to risk, and
£30 647 400 to HomeServe Membership Limited for mis-selling insurance policies and failing to investigate complaints adequately.
In the US, the Securities Exchange Commission (SEC) report to September 2014 listed 175 entities and individuals charged and placed the value of total penalties, disgorgement, and other monetary relief at $3,59 billion.
Though the fines imposed by our own Financial Services Board (FSB) may not appear as impressive, last year it imposed a collective fine of R3 million on one of our large life assurers for excessively remunerating independent brokers in breach of the maximum commission allowed under the Long-term Insurance Act. The list of offences includes breaches of FAIS, the Long-term Insurance Act, Policyholder Protection Rules and the Securities Service Act.
Author: Mike Lledo CA(SA) is the CEO at Consolidated Financial Planning