Edition: Dec 2014 - Feb 2015
A win-win beckons
Catalyst for transformation ready to roll, so long as financial institutions get it right.
Consumer financial literacy and trustee education are old chestnuts. The revised scorecard of the Financial Sector Charter gives them new life. It’s turned what previously might have been nice-to-have promotional addenda, with altruistic overtones of social responsibility, into a financially-measurable commitment.
Abandon stereotypical responses. Think of the FSC scorecard not as an obligation but as an opportunity; not as a disguised tax but as a tool for the privatesector signatories to promote their own interests simultaneously with national interests. The more that consumers understand how and why to save, the better for expansion of the savings pool that is the mainstay of financial institutions. They, rather than the state, are in pole position to lead.
Similarly on education of pension-fund trustees, incorporated under the FSC scorecard with consumer financial literacy. Better qualified trustees means, or should mean, better governance of pension funds that investment.
As trustees’ duties have become more complex, in line with Regulation 28, so too has the need for ‘fit and proper’ standards of professionalism now envisaged as mandatory. It’s compounded by the emergence of megafunds, usually into umbrella arrangements, where the agglomerated fortunes of individual savers are increasingly in the hands of proportionately fewer and hence more influential trustees.
Critically, as TT has often been at pains to argue, this is where consumer financial literacy and the governance of retirement funds converge. Once consumers appreciate the linkage between their savings vehicles and their stake in corporate SA, with rights attendant upon it, the focus of the national discourse potentially shifts from divisive to participatory.
For the shift to be triggered depends on such a realisation, in turn depending on consumer financial education. Trustee-governed funds are the nexus to seek alignment between policies of government, strategies of business and attitudes of labour.
The one is inextricably tied to the other in their impact, for better or worse, on ultimate beneficiaries. They include, but aren't limited to, many millions of pension-fund members and their dependents. All consumers and potential consumers of financial products are affected; in other words, pretty much everybody.
The revised scorecard encapsulates financial education under Socio-Economic Development (see chart) where it has been moved from Access. This is to ensure that various role players not subject to the access-product provisions still undertake financialliteracy programmes.
While institutions which spend 0,4% of net aftertax profit on consumer literacy and trustee education continue to score two points, an additional bonus point is included for those which spend 0,5%. "The incentive has thus been increased from the previous dispensation", notes Trevor Chandler of ASISA in welcoming it.
Money is not the problem in that the financial institutions are required to spend prescribed minima, amounting to many millions of rand per year. A more likely challenge is in an adaptation of mindset. Considering that banks and life offices together comprise one of the biggest single categories of discretionary advertising spend, the deflection of a sliver to financial literacy and trustee education should help them easily to satisfy these minima whilst serving a similar image-building purpose and earning them FSC points at the same time.
This is because sponsoring institutions are encouraged to brand the educational material they supply. Branding is in order, says the code, “to deter institutions from using service providers with little or no credibility or material of sub-standard level” (TT June-Aug).
Obviously, to qualify for scorecard points, the material would need to be devoid of marketing spin and distinct from conventional advertising. But its purpose and payback can be at least equally potent, depending on the creativity for drawing audience and attention especially through the host of electronic media that proliferate.
The code, as the FSC Council points out, is based on a harmonisation of the generic codes gazetted by the Department of Trade & Industry under the Broad- Based Black Economic Empowerment Act. Committing all participants to provide "accessible financial services to black people and by directing investment into targeted sectors of the economy", compliance isn't a matter of choice.
In a presentation to the SA Venture Capital Association, Chandler estimated a foreseeable commitment of over R120bn by banks and life offices alone to low-cost housing, transformational infrastructure, smaller enterprise, black agriculture and B-BBEE transaction financing. Add short-term insurers and others, like asset managers. Add pension funds, for instance through their extended scope into private equity. The R120bn gets bigger.
The endeavour should be less about slicing the pie than about increasing its size. To do this, and in the process help transform SA into the “equitable society” that the FSC envisions, will be a massive achievement eminently achievable.