The Hindu Business Line : Investment products have created new dimension to wealth creation

MR ANDREW Bradley, Chairman of Financial Planning Institute, South Africa, was recently in the country to attend a convention hosted by the Financial Planning Standards Board India.

Here, he talks to Business Line about the import of regulations, especially to the Financial Adviser and Intermediary Services Act, which was recently introduced in South Africa.

Excerpts:

How should Indian standards be benchmarked against international best practices?

The first thing that you need to look at is what you want to benchmark and why. There is very little point in trying to benchmark a standard that makes the compliance of it so expensive that it effectively means that the only clients that can afford the service are the very wealthy.

Best practices, legislation, regulations and standards need to be mindful of the critical role that financial planning plays in a developing economy. It assists and enables individuals to uplift themselves and create a more substantial middle class.

Only in the past 50 years has there been the creation of investment products that enabled wealth creation.

Earlier, the only way that you could generate wealth was through inheritance, land and business ownership or theft!

Investment products have now created a whole new dimension to wealth creation. The standards and regulations should therefore be drafted in the most appropriate way that enables access while controlling and eradicating bad advice.

Is there scope for legislative changes as far as the process of financial planning is concerned?

There is significant scope for legislative changes. To ensure credibility and positioning of the profession, it is essential to legislate. Without this everyone will try to enter the market — many appropriate and some inappropriate. Without controls, it will create problems for the profession down the line.

There should also be market-conduct controls; if a planner does not act appropriately he can lose his licence and never again practice. It would be wise to review what is in place for the legal, medical and accounting professions and replicate this for financial planners.

Most countries try and regulate products. This is an incorrect way to go about it. The right way to do it is to regulate the advice.

Legislators and regulators should bring in a credible group of financial planners and get them to form an advisory committee to establish the regulations. These planners know the practicalities of dispensing advice and will ensure that the correct benchmarks and controls are in place.

What has been done in your country to improve the financial planning industry?

With effect from September 2004 there is a Financial Adviser and Intermediary Services Act. This requires anyone dispensing financial advice to be registered with the regulators. To obtain a licence, you need to show that you are fit and proper. To be regarded as such, there are educational, experience and ethical requirements.

Once you are found to be fit and proper, you have to maintain this standard by submitting ongoing financial and compliance reports and undergo continuous educational requirements.

Is there scope for utilising the planning models used there in India?

There is excellent scope for India to use the various models that are available in South Africa and elsewhere in the world. These have evolved over many years. You can learn from others' mistakes by taking only those models that have worked and discarding what have not worked. It would be crucial to ensure that you understand why these various models have either worked or not worked in their environments.

We went to other leading CFP designate countries and researched what was happening there. I believe this is the best way of doing it as it exposes you to those who are ahead of you. It prevents a reinventing of the wheel. We found a model in Australia that made sense for our environment and have subsequently South Africanised it and enhanced it even further.

The key issue that providers of advice/planning models will want to ensure, if they were to make their proprietary models available, is that the intellectual property rights will be honoured and protected. If this cannot be done then there will be a great reluctance to transferring these models to India.

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