In August last year, the regulator confirmed to International Adviser it was planning to introduce the first phase of the upcoming reforms, aimed at overhauling South Africa’s financial services sector, in January 2017 – six months after the original deadline.
In a status update on its website, the FSB has now unveiled a new regulatory framework for insurers and financial advisers including a comprehensive list of commission caps as well as a ban on upfront commission.
The proposals involve scrapping the 22.5% commission that advisers/providers currently charge for credit life schemes for carrying out “administrative work”.
Credit life insurance is a life insurance policy designed to pay off a borrower’s debt if that borrower dies. The face value of a credit life insurance policy decreases proportionately with an outstanding loan amount as the loan is paid off over time until both reach zero value.
Instead, “the maximum commission level for all credit life schemes will be the same (currently 7.5%), regardless of whether or not administrative work’ is carried out,” explained the FSB.
Restrictions set out for tied-advisers mean that any commissions they receive cannot exceed “the value of customer advice fees in fact paid by customers in respect of such products.”
Specific caps are listed in the table above published by the FSB.
“We remain concerned that a number of current practices in relation to representative remuneration give rise to inappropriate distortions in the advice market,” said the watchdog, adding that before RDR comes into force these will be further clarified.
“Specific standards will be set to clarify and strengthen the principle of “equivalence of reward” as the basis on which long-term insurers may remunerate their tied advisers,” added the FSB.
Insurer-tied advisers will also no longer be able to provide advice or services in relation to another insurer’s products.
The consultation closes on 22 February 2017.