Issue: March 2013 / May 2013 Issue


Education is empowerment

Big bucks will be invested to advance financial literacy, thanks to a new B-B BEE charter. It should be money well spent.

The need is there. The market is there. The know-how is there. The money is there. The distribution platforms are there. So what’s to prevent consumer financial-education programmes being launched on the mass scale long wanted but never previously attempted?

Nothing, really. The trigger is in the Financial Sector Charter. Gazetted late last year by the Department of Trade & Industry under the Broad-Based Black Economic Empowerment Act, it’s the formidable fulcrum for tapping into every resource necessary.

No longer is the FSC a voluntarily “transformation” code as it was in 2004. Now its implementation is a statutory obligation on financial institutions – the banks, life offices, short-term insurers, asset managers and even intermediaries.Compliance is measured in accordance with a set scorecard, inclusive of points for consumer financial education.

Measurement for this aspect alone will be ratcheted up from 0,3% this year to 0,4% next year of each institution’s taxed profit on SA operations. That the maximum will remain at 0,4% until a 2017 review implies that, being in percentage terms, the actual money amounts would rise or fall depending on the profit performance of individual institutions. To the extent that they increase with inflation, so will the contributions.

The amounts look to run into hundreds of millions. For the sake of illustration, on an estimate based on 0,4% of taxed profit shown in their latest full-year financials, the four largest banks could cumulatively be in for around R220m and the life offices for perhaps another R80m in any single year.

To this total pool of say R300m must be added the array of others in the broad category of “management of investments on behalf of the public”. It goes right down to managements of private equity and collective investment schemes, JSE members and law firms’ intermediate trusts.

A figure anything like R300m eclipses the R12m that the Financial Services Board attracted for consumer educationin 2011-12. Doubtless, it also exceeds comfortably the spending by the Bank and Insurance SETAs for the industry-restricted training they undertake. It probably compares much more favourably with educational programmes that individual institutions undertake of their own accord under their respective budgets for marketing and corporate social investment.

The FSB and the SETAs are funded by levies on financial institutions. Which begs the questions of how this new dollop of money is to be coordinated with them and directed separately from them; of how replications of effort and bureaucracy are to be avoided. Please let there be no turf wars between the myriad organisations, in the state and private sectors, already active in free and fee-based service offerings.

Chandler...practical objectives

Mass education is a whole new ballgame.
Bear in mind, too, that the focus for scorecard points is onthe lesser privileged.

As matters stand, the FSB has a legislative mandate and the financial institutions an FSC obligation to promote consumer financial education. The FSB prefers partnerships with financial institutions, rather than dip into its levy-sourced revenues, to advance its mandate. For their part, many institutions already use professional trainers to reach targeted audiences. Add to this the schools trying, from departmental budgets, to teach financial literacy in their lifeskills curricula.

For the whole thing not to go all over the show, strategic partnerships will need to be structured. And with partnership comes the need for leadership, so that there’s oversight and accountability.

Over to National Treasury which is coordinating the formation of a national consumer education committee. On it there’ll be representation from the FSB, the Association of Savings & Investment SA (ASISA), the Banking Association (BASA), the SA Insurance Association (SAIA), and such other industry bodies as the Association of Black Securities & Investment Professionals (ABSIP). “We envisage a collaborative approach”, says Trevor Chandler who spearheaded ASISA’s input to the FSC drafting.

Such are the opportunities opened by funding availability that it becomes feasible to contemplate not merely collaboration but perhaps a centralised umbrella structure into which resources can be pooled and from which direction is provided for optimal impact, particularly in recruitment of requisite skills: qualified teachers to fashion appropriate content for different audiences, communication specialists to negotiate delivery channels, technology experts up to speed with electronic connectivity.

Mass education is a whole new ballgame. Bear in mind, too, that the focus for scorecard points is onthe lesser privileged. “The target market for consumer education will be individuals in the LSM 1-8 group with the major emphasis on the LSM 1-5 category”, the FSC states. “The LSM 6-8 group is included because they were the most affected by the financial crisis and proved to be the most vulnerable.”

LSM stands for ‘living standards measure’. It’s computed without reference to income, race or age. The earlier that the process of financial education can begin, with the basics of savings being taught in primary schools, the better.


In SA, a recent study by the Bureau for Market Research reveals that a meager 35% of the surveyed “affluent” market (annual income above R750k) and the “realised” market (annual income R300k-R750k) are financially knowledgeable. This illustrates the challenge of consumer literacy, since these are persons who would be expected to have a better understanding of the financial products and services they use.

Making permanent changes in attitudes towards pensions, and savings in general, requires ongoing education. This education, however, must start with children at home and in schools.

-- National Treasury policy document, February 2011.



The Association of Savings & Investment SA, whose heavyweight members include the life assurance offices and asset managers, has set up a foundation that will be registered as a public-benefit organisation. Grant contributions to it will enable the delivery of approved projects, selected on a formal strategy that incorporates National Treasury priorities.

“All initiatives will be aligned to the FSB definition of consumer financial education, and will be required to meet the FSC guidelines, in order to facilitate measured entities being able to claim their FSC points for consumer education,” an ASISA brochure explains.

Grant contributions to support consumer financial education, as defined in the FSC, will facilitate 100% FSC points scoring. It will enable the grantor, or measured entity, immediately to recognise the full grant amount awarded.

The foundation’s board will be chaired by an independent trustee. At all times the board will comprise at least 50% black trustees of whom at least half will be female. Apart from ASISA members, others will include representatives of National Treasury, community groups and labour unions. Ruth Benjamin-Swales has been appointed chief executive.

The foundation will also be the beneficiary of the ASISA enterprise development fund, an entity aimed at development of qualifying small and emerging micro enterprises. It will be done through “structured capital finance and business development support”, says ASISA. “This will serve to ensure the foundation’s future sustainability.”

To summarise key elements:

How does the FSC promise to change past practice on consumer financial education?

It’s by increasing the quantum of funding that the financial sector dedicates to consumer education through the provision of BEE scorecard points. The qualitative aspects of this spend will be expressed in guidance notes shortly to be issued by the FSC Council (comprising representatives of government, industry associations, ABSIP, “the community” and organised labour).

What sort of quantum?

Banks, life offices, short-term insurers and others in the sector have phased targets, 0,3% of net after-tax profit for this year and 0,4% for each year until a review at end-2017. It’s difficult to be precise on the total amount because many substantial industry players are not JSE-listed and thus their profit data aren’t publicly available.

All entities in the sector are obligated to report on their spending to the FSC Council. This includes entities such as asset-management companies exempted from the balance of the ‘access to financial services’ element of the scorecard.

Will institutions be permitted to brand the educational material they supply?

Yes. In fact, it’s encouraged for a particular reason clearly distinct from advertising. The FSC states that there should be “full branding of printed material in order to deter institutions from using service providers with little or no credibility or material of sub-standard level”.

So the institutions must be careful not to view this as an extension of their marketing function. It’s a main reason that ASISA, for one, has established a foundation (see box). A purpose is to ensure that training provided by its members is product-neutral while at the same time allowing brand recognition for sponsoring institutions.

Is it likely that moneys for consumer education will be new or derived from institutions’ existing budgets for corporate social investment?

Some but not all will be CSI. The main objective of the training is to stimulate financial inclusion.

Are projects for some LSM groups to earn more scorecard points than others?

Training must be specifically targeted at the LSM 1-8 market segment, and only this training will qualify for scorecard purposes, but the industry can and should educate all consumers.

What are the institutions’ incentives for compliance i.e. as a percentage of the total scorecard that full compliance with the consumer-education provisions will represent?

Two points on the scorecard have been allocated to consumer financial literacy. Institutions are measured against a balanced scorecard that varies from 83 to 100 points depending on the exemptions applied.

While the two points appear to represent only a small component of the scorecard, the spend is linked to performance against the ‘access to financial services’ scorecard which totals 14 points. Two points as a percentage of 14 is significant.

Will the respective institutions be left to pursue their own initiatives, or will there be some centralised body?

Both. National Treasury is coordinating a consumer education committee. The FSB has a foundation, as does ASISA. The SAIA and the JSE also undertake projects on a centralised basis.

How will respective targeted audiences be reached e.g. textbooks, electronically, interactively, radio and TV?

All of these, plus face-to-face. Delivery is split between awareness and face-to-face initiatives at
a 1:1 ratio.

What provisions are there for accreditation to indicate educational levels passed?

There is a requirement that the impact of training be measured. The compliance requirements are now more outcomes-focused. Changes in consumer behaviour and understanding of post-training needs will need to be measured. There are no requirements related to educational levels.

Have specifications been developed for educational material?

No. Multiple interventions are envisaged. There are therefore no standard specs.


Could training for trustees of retirement funds be included as a component of consumer financial education for FSC scorecard purposes?

No, not a present. This is an unfortunate by-product of the fact that retirement funds are not included in the scope of the FSC application. In principle, ASISA would support the inclusion of trustee training in the definition of consumer education provided that it meets with the approval of other FSC constituents.

Once this is addressed, there could be scope for cooperation with the Principal Officers Association in its “professionalization” endeavours too.


The first FSC, effective as a voluntary code from 2004, had quite a lot to say about pension-fund trustees. Recognising their “critical role in influencing the flow of funds”, it continued: “Initiatives will therefore be developed to enhance their understanding of investments in general and specifically their participation in targeted investments and BEE transaction financing and to make a material contribution to shareholder activism.”

Nothing similar is mentioned in the new FSC. Strangely, there’s no mention of trustees at all; not even their inclusion as target for consumer education. The omission is unfortunate and perhaps unintentional, unless the FSC drafters assumed that trustees’ financial literacy was a given.

If they did, they’re wrong.

Look no further than last year’s National Treasury discussion paper on preservation, portability and governance for retirement funds: “The role of trustees is an important aspect of pension fund governance. However, it is widely acknowledged that many trustees may lack the competence and necessary skills to make investment and management decisions consistent with the best interests of beneficiaries. As a result, government is considering empowering trustees through compulsory (and regular) training requirements, and reinforcing good governance principles.”

Further, National Treasury proposes that the Financial Services Board circular on fund governance (circular PF 130) be elevated to directive status. PF 130 says: “New board members should, at the expense of the fund...receive rigorous and comprehensive training on both the legislative and regulatory framework and governance safeguard them against bad decision-making.”

It adds: “Board members should be educated on an ongoing basis about new matters relating to funds to ensure that they maintain an understanding of risk management, investment risks and strategies, benefit structures, legal issues, regulatory and compliance requirements, taxation, actuarial and reform issues. The cost of this information provision and training should be at the expense of the fund.”

Why all this should be at the expense of the fund – in other words, at a cost to fund members – isn’t clear. National Treasury is hell-bent on reducing fund costs to increase member benefits.

The simple retort is surely to join trustees into the categories qualifying for FSC consumer-education points. It will be even more necessary with the introduction “fit and proper” requirements for trustees, a cornerstone of which is continuous education on matters far from basic.

-- National Treasury policy document, February 2011.