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Get ready for the onslaught... High interest will not protect you from ... Plan for your children's future with tru... UNIT TRUSTS:ABSA Balanced Fun... Wall Street bull ascends the throne once... 'South Africa still a good place to inve... Take delivery of service from the comfor... Is the advice you're getting good for yo... Brokers place their bets on the rollerco... |
Is the advice you're getting good for you or for the broker?
IT'S ALL so confusing. Dozens of companies - some of them internationally famous such as Merrill Lynch - have started marketing their investments in South Africa. There are now well over a hundred unit trusts to choose from, as well as the many hundreds of shares listed on the JSE. If you dare to venture abroad, there are tens of thousands of funds on offer.
This increasing complexity means that ordinary folk, more than ever, will need to turn to specialist advisers for advice. And the advisers, in turn, will have to upgrade their investment skills. For a long time the bulk of the specialists doing the advising were experts at selling life assurance - endowment policies and retirement annuity plans, with their tax advantages and inflation-fighting potential, were the prime investments for ordinary folk. The sustained growth of the stockmarket over several decades changed that. Small investors increasingly turned to unit trusts to give them better returns at lower charges - and ones that are not hidden, as insurance investments' charges have usually been. However, most personal financial advisers received their basic training in insurance, with its emphasis on analysing clients' needs rather than where and how to invest. The increasing complexity of personal investing, which now encompasses the entire world, means the adviser's job is vastly more difficult.
With the trend towards transparency in commissions, and with intensifying competition as new companies and funds fight for a share of a hopelessly overtraded market, the adviser often faces the unpleasant prospect of getting paid less for providing a lot more effort and expertise. The environment of flourishing criminality and collapsing ethics encourages consultants, even more so than in the past, to recommend the investments that pay them the most commission. Peter Stephan, a senior Old Mutual official, questions whether even the unit trust-linked products are being sold for the right reasons. "Are financial intermediaries selling these plans because commissions are higher - being unregulated - and because of the wonderful overseas trips that one can qualify for?" he asks. "Or are they being sold after a proper risk analysis is done of the investor's position?" Stephan says there is no doubt that bad selling practices - that are very often commission-driven and not needs-driven - have done great harm to the image of the life assurance industry. "The low state of business ethics is very concerning," he says. "Far more cost disclosure and more flexibility will be needed in future as to how intermediaries are remunerated for their services. "With new distribution channels springing up, commission-free products, and discounts on unit trusts, intermediaries need to diversify their skills to provide sound financial advice. "The old-style 'product pushers' are set to become a dying breed in the new environment," says Stephan. ý Martin Spring is editor of Personal Finance newsletter
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