Stumbling blocks turned into stepping stones

by Lelane Bezuidenhout | 28,May,2024 | Industry Updates, IRFA, Q2 2024

Herman van Papendorp

Recently, I had the privilege of chairing the Financial Planning Standards Board’s (FPSB) global Chief Executive Committee meetings, where representatives from various regions shared updates about the financial services industry within their territories.

During South Africa’s update, I discussed our status of being greylisted, the imminent implementation of the two-pot system, and the yet-to-be-promulgated COFI Bill, with optimism for its introduction by the fourth quarter of 2024 or sometime in 2025.

I focused on the positive aspects of what seems to be a very challenging situation.

Understanding greylisting

The discussion around greylisting has piqued the interest of several territories. I explained at a high level to the committee that South Africa’s greylisting stems from not fully adhering to international standards around the prevention of money laundering, terrorist financing and proliferation financing. It appears that regulators in other territories are focusing on the same issues.

The silver lining of greylisting is that South Africa now receives international support and guidance, which drives improvements in our financial systems and regulatory frameworks. This support has been a powerful motivator for our regulators to fast track reforms and adopt international best practices tailored to our unique environment. While we are a developing nation, unlike fully developed countries such as the United States, our journey towards enhanced regulatory systems signifies our commitment to combating financial crime. There is a collective effort from our regulators to remove South Africa from the greylist by February 2025, showcasing our national dedication to this goal. If anything, our regulators are now collaborating more closely.

Finding the rainbow in the two-pot storm

The introduction of the two-pot system has been met with curiosity and confusion by other territories, particularly concerning the option for fund members to access a portion of their retirement savings before retirement.

I explained that this system responds to the socio-economic challenges in South Africa, such as high unemployment rates, business closures due to economic strains like load shedding, high interest rates, crime rates and the general cost of conducting business in SA. When the two-pot system is implemented, members who opt to withdraw from their retirement savings will face marginal tax rates. The system aims to strike a balance between providing immediate financial relief and maintaining long term financial security through compulsory retirement savings/fund preservation of at least two thirds of the member’s share in the fund. The biggest opportunity is to enhance the preservation of retirement funds and encourage responsible financial planning, which will ultimately benefit the stability and integrity of the retirement reform landscape.

The financial advisor at the intersection of silver linings and rainbows

There has been a significant focus on getting South Africa off the greylist and ensuring that funds are ready by 1 September to implement the two-pot system, but what about the advisors at one end and the consumers at the other?

It is crucial, now more than ever, to ensure that compliance documents are used not merely in a tick box fashion, but with a TCF/outcomes-based mindset. Compliance officers and key persons need to work together for the greater good of the FSP and its representatives, but most importantly, the consumer.

It is essential to remember that any intermediary service provided, and any financial advice given regarding any two-pot option must still adhere to the general code of conduct, including disclosures that must be made and proper professional advice that must be given. For example, if a retirement annuity is made paid up at the end of August and a new one is started on 1 September to signal the changeover for the client, it is a full-on replacement that needs to follow the correct steps of financial planning done right.

In closing, while challenges such as greylisting and the introduction of the two-pot system may seem daunting, they also offer opportunities for significant reform and improvement. These developments are not just regulatory hurdles but stepping stones towards a more robust, transparent and resilient financial sector in South Africa.

While it may seem like a dire time to be in the industry, it is precisely the time when you can make the most significant difference in moving our sector forward.

Stay strong!

Lelane Bezuidenhout
 Chief Executive Officer at  Financial Planning Institute of Southern Africa (FPI) | + posts