MONEY CLINIC | I want to invest. What questions should I ask the financial services provider?

• For more financial news, go to the News24 Business front page
• Have a money problem that needs solving? News24 Business can help! Send your question to editor@fin24.com 

To remind South Africans to take precautions when investing in a financial services product, the South African Association of Treasury Advisors highlights the importance of dealing only with an authorised financial services provider (FSP) when making any investment.

This comes in the wake of the Financial Sector Conduct Authority (FSCA)'s 19 October declaration of crypto assets as a financial product in terms of the Financial Advisory and Intermediary Services Act. According to SAATA, every authorised FSP is bound by professional and legal stipulations that have been put in place specifically to safeguard the public. Should anything go wrong (for example, if an investment return is exaggerated or an FSP’s representative behaves unethically), the consumer then has recourse.

In order to qualify as an authorised FSP, the person or company is required to:

• abide by certain codes of ethics, standards and conduct, including transparency and Treating Customers Fairly (TCF),
• comply with licensing stipulations and requirements,
• have sufficient professional liability insurance,
• be financially sound,
• do continuous professional training,
• be qualified to a certain level,
• have commensurate industry experience.

Richard Beddow of the South African Association of Treasury Advisors (SAATA) unpacks the questions you should ask and what to consider when taking financial advice or considering the purchase of a financial investment.

What questions should you be asking?

• SAATA recommends asking your service provider a few key questions:
• How are you regulated?
• Do you belong to an industry body, and how can I verify that you do?
• Do you have the necessary professional liability insurances in place?
• Can I see your statutory disclosure form?

A statutory disclosure lays out particulars such as the representative’s status in their company, personal and office contact details, their qualifications and memberships of industry bodies; whether they have professional indemnity insurance, information regarding their fees, as well as information about your rights and procedures to follow for complaints. If they are regulated, your FSP must present you with this disclosure.

"If the person or entity you are dealing with cannot provide you with these answers and documentation, find someone who can," says Beddow. "It's your right."

Continuing issues around crypto 

The Financial Sector Conduct Authority (FSCA) recently declared crypto assets a financial product. This is an important step towards enhancing the monitoring and compliance of crypto transactions. However, it is essential that the South African public realise that, for now, there are still risks when trading or investing in crypto, says Beddow. 

These risks include an unclear path on the requirements for a person offering such crypto-related products and services to become fully regulated, the relaxation of certain standards for the time being, and most importantly, no requirement to have the necessary insurance in place to protect clients' funds should something go wrong. And recent events in the market show that things certainly can go wrong. 

"This raises the concern that South Africans might buy a high-risk investment product or take advice from a person or entity that is not licensed, not insured, and possibly not even properly qualified," says Beddow. "The public needs to be aware that, until the legislation has been finalised, crypto service providers are not regulated, which means that unless consumers deal with an authorised FSP, they have little to no protection or recourse." 

Questions may be edited for brevity and clarity.