The term ‘broker’, which has largely fallen into disuse, referred to an independent sales person who sold financial products to members of the public.

Today, only licensed and qualified financial service providers may provide financial advice and intermediary services, including the sale of financial products. This means all licensed financial advisors, regardless of their independence, may provide financial advisory as well as product sale services.

Where a product is sold with no analysis, advice or recommendations, legislation requires that risks attached to such a sale need to be explained clearly. Most advisors today will not offer a product before the customer’s financial position has been analysed, with relevant financial needs and goals identified to enable the right recommendations and advice.

This advisory service is a professional service regulated by the FAIS Act to ensure that every advisor has the required skills, knowledge, licensing and professional accountability.

The cornerstone services of the advice process, whether conducted by an independent or non-independent advisor, is analysing the customer’s financial position relative to their needs and goals, drafting a holistic financial plan and providing strategies to meet these needs.

These days the difference between an independent and non-independent advisor therefore becomes relevant only when considering the products that can be recommended and sold.

While it is true that an independent advisor is able to provide a broader range of solutions across various insurers and platforms to meet the customer’s needs, they will need to perform a comprehensive comparative analysis. Identifying the differences in offerings is necessary to enable the customer to make an informed decision.

This, however, does not mean that a non-independent advisor will not also be able to provide a range of solutions that is also sufficient to address the customer’s needs. Nor does it mean that the customer will in any way be hampered from achieving his/her financial goals when dealing with a non-independent.

The value that a non-independent advisor offers is their strong focus on quality financial planning and advice processes and outcomes, combined with an in-depth understanding of their smaller focused suite of solutions/products. The advantage of a more limited selection of products is that it enables the non-independent advisor to structure and customise these products to best meet the needs of the customer.
The disadvantage being tied to one product supplier is that you have nothing to compare it to. If terms or increases are applied the Broker can not move the policy to another Insurer as they are tied to one product supplier, which in turn is not giving the client the benefit of comparisons or the opportunity to move their portfolio to a different risk carrier.

The changes in legislation have ensured that the regulated advice processes across the entire industry are focused on advice as opposed to product sales. The “after sales” servicing policy as well as the provision of continuous advice (also referred to as customer reviews) are mandatory for all.

While many independent and non-independents are remunerated by commission, many financial services providers also have advice fee structures in place, should a customer prefer this payment option.

In short, what every consumer needs to know is that there are indeed key differences between independent and non-independent advisors, but each has its own distinct advantages and disadvantages.

For any assistance from an Independent Advisor with numerous product offerings with various Insurers please feel free to visit our website www.esbrokers.co.za.

Article featured in Moneyweb 11/9/2020 by Lizl Budhram, head of advice, Old Mutual Personal Finance.
(This article is aimed more at the Long Term Industry