Latest issue of Blue Chip

Blue Chip, Issue 91 - May/June/July 2024

Principles of the Profession

Even with the ongoing emphasis on ethics training for financial service providers (FSPs), it can still go wrong and controversy sometimes follows. It is a matter of principles. We cannot go wrong if we stick to the principles of what is ethical. Our column on page 16 reminds FSPs to return to the basics regarding the ethical treatment of clients and our businesses.

Many business and legal principles in the industry have been firmly shaped over time. As we move towards promulgating COFI, financial advisors are the beneficiaries of the entrenched tenets that have sustained FSPs for years. COFI is centred on principles that focus more on the outcomes within the spirit of the law, rather than a tick-box methodology to compliance. Principle-based legislation means relying more on broadly stated principles that set the paradigms by which FSPs should conduct their business. Principles refer to behavioural standards, for example, “honesty”, “integrity” and “skill, care and diligence” with which FSPs organise their businesses and treat their customers (page 62). To deal with this AI wave, you need to be strategic. It’s important to organise and optimise data so that AI can use it. Prepare your data by identifying the 20% that is important for 80% of the services and tasks you perform and focus on that. And then you need to ensure that you implement security measures and protocols (page 64). There are also new principles that are created as the world grows and the next big thing appears on the horizon. (Don’t miss our article on investment themes on page 30.)

Regulators in South Africa require investment managers to absorb ESG principles into the responsible management of their clients’ assets. Investment managers’ challenge is maximising the projected benefits while minimising adherence costs to these ESG-related targets. Clients must recognise that their ESG goals will have some performance-related consequences in their portfolio returns. Increased transparency should help manage client expectations and encourage them to make informed decisions aligning with their values (principles) and financial goals (page 22). To abate the risks relating to crypto assets, South African regulators have started constructing regulatory framework, which includes the deposition of crypto assets as a financial product for purposes of the Financial Advisory and Intermediary Services (FAIS) Act. However, the regulatory framework relating to crypto assets will continue to transform as crypto assets evolve. In this edition, Blue Chip introduces a series of articles which aim to provide readers with a more holistic understanding of cryptocurrency and the current South African regulatory framework (page 52).

On page 78, Reg Thompson, DTB Wealth director, reviews The 7 Pillars of Financial Health by Rob Macdonald, head of strategic advisory services, Fundhouse. Based on insights garnered from coaching and consulting with hundreds of financial advisors over his career spanning 25 years, Macdonald delves into why we should completely rethink our approach to money. He provides seven principles for financial planners to stay relevant in their professions.

These pillars of financial health as well as the principles implemented by the FPI and the FPI Code of Ethics and Practice Standards guide FSPs in treating customers fairly and organising their businesses based on sound values.

Stick to your principles!