Inequity Bugs IFAS Alleged Unlawful Practice Following on from my article which was published in Money Market Magazine on 31 November 2012 entitled “Advisor Prejudice and Vested Interests”, I am now compelled to write about other alleged unlawful behaviour occurring in interpreting the Pension Funds Act and the undue influence which Life Offices have on ASISA. Firstly, Section 14 (7) (b) (ii) of the Pension Funds Act (which deals with the transfer of a retirement annuity) does not lawfully grant permission to LISPS to withhold IFA fees if a client does not sign annually for advisor fees on his Retirement Annuity transferred to it. Further, the above Section does not use the word “signature” at all! Even Part VI, Section 7 (4) of the FAIS General Code of Conduct which makes annual reviews compulsory makes no mention of the word “signature” where it relates to confirmation of fees payable by the client. Therefore, the LISP is allegedly acting illegally with the alleged unlawful permission of ASISA, which is top-heavy with Life Office executives, who have vested interests in holding onto its assets under management. ASISA has no legislative powers. When a S14 transfer is initiated, the Life Office in question will also impose penalties which act as a disincentive for the transfer. A friend in the industry, who is a senior financial advisor at a big life office, referred the S14 matter to a legal advisor at that life office. This legal advisor stated that the [unlawful practise] is applied to avoid “churning.” With respect, this argument is fundamentally flawed as “churning” happens within life offices as well. LIFE OFFICE “CHURNING” The question that needs to be asked is this: When a Sanlam RA is moved to Sanlam Stratus, the advisor can earn an annual fee [as agreed on the original application form] without the client having to physically sign for it each year? The same will apply to conventional Old Mutual Policies when transferred to Old Mutual Max Investments and the advisor can earn an annual fee without having to obtain a client signature each year. This is a clear case of vested interests of Life Companies. But if a Life Company RA is transferred to a LISP, the unlawful application of S14 is applied and the Advisor must get a client signature each year to confirm the annual fee. If a client signature is not obtained every 12 months, the LISP summarily and unlawfully stops paying the fees to the advisor. This is a clear case of an illegal practice which LISPS, being members of ASISA, apply. In turn, life offices use this unlawful interpretation of Section 14 (7) (b) (ii) of the Pension Funds act to mitigate the loss of assets under management. A strange anomaly exists that after a Section 14 transfer, asset managers and their funds and LISPS earn fees without a client’s annual signature despite the fact that the advisor’s annual fee is stated and signed for on the original application form. Even if legislation goes through confirming that a client signature is needed annually due to a S14 transfer, this again highlights the prevalent nature of Advisor Prejudice and Vested Interests. The playing fields should be levelled in terms of free market principles and not just to benefit institutions at the expense of advisors.
Posted on: Mon, 02 Sep 2013 09:44:20 +0000