Adding a commission-only representative who will work from home
Thabo holds a Category I FSP licence for short-term personal lines and employs two representatives. He wants to appoint Sipho, his brother-in-law, as a representative. Sipho has a relevant NQF Level 4 qualification and passed the RE5, but has never worked in insurance. Thabo plans to pay him commission only, let him work from his own home office in a town 120 km away, and have him start advising clients next week. Thabo says he will 'check in by phone every Friday' and has asked his admin clerk to 'keep an eye on the files'. Sipho will market himself on social media as 'Sipho Insurance Solutions'.
1. What must Thabo do before Sipho may render financial services, and what is wrong with the current plan?
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Before any advice is given:
- Thabo must satisfy himself that Sipho meets all four fit-and-proper pillars: honesty and integrity, competence (qualification, experience, RE5), operational ability and financial soundness.
- Sipho must be formally appointed as a representative of Thabo's FSP, his details submitted to the FSCA and his appointment reflected on the register before he renders services.
- Because Sipho has no experience, he must be placed under supervision under a documented supervision plan.
Problems with the plan:
- Starting 'next week' bypasses fit-and-proper verification and supervision.
- Branding himself as 'Sipho Insurance Solutions' suggests he is an independent FSP. He must disclose that he is a representative of Thabo's FSP and act under its licence.
- The admin clerk is not a qualified or approved supervisor, so 'keeping an eye on the files' is not supervision.
- Commission-only pay is permissible, but the commission must be disclosed to clients and must not drive unsuitable advice.
2. Explain the supervision obligations and how Thabo should structure them.
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Supervision is a regulatory obligation of the FSP, not an informal arrangement.
- The FSP must adopt a written supervision policy that sets out who supervises, what is monitored, how often and how records are kept.
- The supervisor must be competent and experienced enough to assess Sipho's advice, and must be approved by the FSP's governing body or key individual.
- New and inexperienced representatives must be supervised for a minimum period set in the policy (commonly six months for a Category I FSP), with the intensity reducing as competence is demonstrated.
- Practical controls: pre-approval of advice, file reviews, client call-backs, review of social media content, and a log of supervisory interventions.
- Remote supervision is possible, but it must be effective: scheduled reviews, sampling of advice records, and verification that Sipho is not giving advice outside his authority.
- The FSP remains accountable for Sipho's conduct; supervision records must be retained and available to the regulator.
3. What operational ability and record-keeping issues arise from the home-office arrangement?
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Operational ability:
- A home office 120 km away must still meet the FSP's standards: secure client data, reliable communication, business continuity and access to compliance support.
- The FSP must show it can monitor and control the activities from a distance; if it cannot, the arrangement should not be approved.
- Professional indemnity cover and the register of representatives must reflect the appointment.
Record-keeping:
- The FSP, not Sipho personally, remains responsible for client records, advice records, disclosures and complaints records.
- Records must be kept for at least five years in a retrievable form, and must be produced on request to the FSCA or the FAIS Ombud.
- Social media marketing material is a business record and must be approved and retained.
- Delegating file oversight to an admin clerk creates a gap: no one is testing the quality of advice or the accuracy of the record.