Disclosure in financial services goes beyond compliance – it is also an opportunity to create value for clients.
In the complex landscape of financial services, disclosure stands as a cornerstone of client protection and professional practice. For financial services intermediaries in South Africa, understanding and implementing proper disclosure isn’t just about regulatory compliance, it’s about building trust and demonstrating value to clients.
Regulatory framework
The Financial Advisory and Intermediary Services (FAIS) Act establishes comprehensive disclosure requirements through multiple provisions. Section 16 of the Act mandates that Financial Service Providers (FSPs) must ensure clients can make informed decisions about their financial needs. This is further reinforced by the General Code of Conduct, which requires all representations to be factually correct and appropriate to the client’s level of financial knowledge.
The regulatory framework encompasses several key areas:
Client-centric information requirements
Financial services intermediaries must provide:
- A detailed explanation of financial products, including their nature and material terms
- Clear documentation of all charges, fees, and their frequency
- Transparent disclosure of any incentives, remuneration, or commissions
- Comprehensive information about special terms, conditions, exclusions, and limitations
- Details regarding early termination consequences and withdrawal conditions.
Service documentation
The framework requires intermediaries to:
- Maintain detailed records of advice provided to clients
- Document the basis for their recommendations
- Capture client information regarding their financial situation and objectives
- Record the analysis conducted for making recommendations.
Value proposition
While these requirements might seem onerous, they present significant opportunities for both intermediaries and clients.
Proper disclosure practices enable intermediaries to:
- Differentiate themselves in a competitive market by demonstrating professionalism and transparency
- Build stronger client relationships through clear communication of their service value
- Establish a documented track record of their professional practices
- Reduce potential disputes by ensuring clear understanding upfront
- Move beyond the perception of being mere product pushers to trusted advisers
Clients benefit through:
- Better understanding of the financial products and services they’re receiving
- Clear visibility of all costs and fees associated with their investments
- Improved ability to make informed financial decisions
- Greater confidence in their financial planning choices
- Enhanced protection against unsuitable financial products.
Best practices in disclosure
Effective disclosure goes beyond merely providing information. It requires:
Clear Communication: Information should be presented in language that clients can understand, avoiding industry jargon where possible.
Proactive Engagement: Rather than waiting for clients to ask questions, intermediaries should anticipate information needs and address them upfront.
Documented Discussions: Maintaining records of disclosure discussions helps ensure compliance and provides a reference point for both parties.
Regular Reviews: Periodic reviews of disclosure practices help ensure continued relevance and effectiveness.
The role of technology
The digital transformation of financial services has revolutionised how intermediaries can manage and enhance their disclosure obligations. Modern technology doesn’t just simplify compliance, it creates opportunities for more meaningful and efficient client engagement.
Technology has opened new channels for more effective disclosure communication:
- Secure messaging systems that maintain records of all client communications
- Multi-format delivery options that cater to client preferences (email, mobile, web portal)
- Digital signature capabilities that streamline the acknowledgment process
- Automated follow-up systems that ensure clients have reviewed and understood important disclosures.
Looking forward
As financial markets evolve and regulatory requirements continue to develop, disclosure practices will likely become even more important. The recent FSCA thematic review of broker fee facilitation practices demonstrates the ongoing regulatory focus on transparency and client protection.
While disclosure requirements may initially appear to be a regulatory burden, they represent an opportunity for financial services intermediaries to demonstrate their professionalism and value. By embracing these requirements and implementing them effectively, intermediaries can build stronger client relationships while ensuring regulatory compliance.
The key is to view disclosure not as a box-ticking exercise but as a fundamental component of professional practice that adds value for both the intermediary and the client. When implemented properly, disclosure requirements serve as a foundation for trust, transparency, and long-term client relationships in the financial services sector.
