Understanding the role and legislative requirements of the F&I in the motor dealer industry
What is a F&I Agent?
A F&I agent negotiates finance agreements with the major banks to make sure clients get the best deal when they buy a car. They also advise customers on insurance products to make sure they are fully covered should anything happen to their new cars.
The F&I Agent mainly has two roles.
When a person wants to purchase a new vehicle, they will approach the salesperson at a car dealership and the salesperson will assist the customer to make the buying decision. The salesperson will then approach the F&I, to assists the customer with their finance agreement.
The first role of the F&I would then be to negotiate the best finance deal for the client, this is done according to the “Finance” role.
Secondly, the F&I will help the customer to protect their investment should anything happen to the vehicle they just purchased, by offering the customer certain insurance products, and this the F&I would do in their “Insurance” role. The F&I offers certain value-added products (VAPS) to the customer, and the customer decides which VAPS they want to add to his finance agreement.
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In each of these roles, different legislative requirements apply.
In the “Finance” role, the F&I is appointed as agent for the credit provider (or bank) and must act according to the requirements of the National Credit Act. In their “Insurance” role, the F&I is appointed as a representative and must comply with FAIS Legislation, which includes the Fit and Proper Requirements as described in Board Notice 194 of 2017.
Two major acts that F&I’s must comply with:
1. National Credit Act
An F&I must undergo training and ensure they understand the requirements of the National Credit Act
2. Financial Advisory and Intermediary Services or FAIS Act.
An F&I is seen as a representative in terms of the FAIS act, and therefore, the F&I must be appointed by an authorised financial services provider (FSP), and must comply with the FAIS Fit and Proper Requirements.
Let’s start with the “Finance” role of the F&I.
In the “Finance” role, the is appointed as an agent for the credit provider (or banks) and must act according to the requirements of the National Credit Act for example.
- The F&I acts as an agent for the major banks
- The F&I signs the finance agreement on behalf of the credit provider
- The F&I can even create liability for the credit provider
- The F&I must understand the rights of the client
- Must do an affordability assessment
- Understand the documentation they need to get from the client
- Understand ANC/ICP/ANC with accrual
Therefore, the F&I must be trained on the Requirements of the National Credit Act (National Credit Act).
Let’s move on to the “Insurance” part of the role of the F&I.
The F&I also discusses the value-added products
(VAPS) that their car dealership may sell.
Examples of VAPS covered by the FAIS Act:
- Comprehensive car insurance
- Gap or top up cover
- Tyre, rim and windscreen cover
- Scratch and dent cover
- Paint protection
- Credit life insurance
Examples of VAPS not covered by the FAIS Act:
- Service and maintenance plans
- Roadside assistance and accident management
- Manufacturer and extended warranties
- Tracking devices
Some of these products fall under the FAIS act and some do not.
FAIS Act
If the F&I wants to discuss insurance products with the customer to add to the finance agreement, the F&I must be appointed by a financial service provider or FSP and must comply with the FAIS Fit and Proper Requirements as described in Board Notice 194 of 2017.
Board Notice 194 of 2017 – Fit and Proper Requirements
The F&I who acts as a representative when selling insurance products, must be fit and proper. The fit and proper requirements are described in Board Notice 194 of 2017.
There are three main categories of fit and proper requirements that the F&I must comply with:
These Fit and Proper requirements are:
Competence
Honesty, Integrity and Good Standing
Continuous Professional Development (CPD)
Firstly, the F&I must comply with honesty, integrity requirements and be a person of good standing. A person cannot be in the financial services industry, unless they comply with these requirements that is described in detail in Board Notice 194 of 2017.
Secondly, the person must comply with the competency requirements which include having the necessary experience, completing product specific and class of business training, passing the regulatory examination for representatives, or RE5 as we know it, and completing a qualification that is recognised by the Authority. The F&I must work under supervision until the competency requirements are met.
Thirdly, once the F&I completed all the competency requirements, he must maintain his competence by completing CPD points or activities in an annual cycle, the cycle runs from 1 June to 31 May each year. The number of CPD points/activities that one ought to complete in a cycle depends on the product category in which you are working. Most F&I’s must complete 18 CPD points per CPD Cycle.
Getting qualified in terms of the FAIS Fit and Proper Requirements
Under honesty, integrity requirements and be a person of good standing, a person cannot be appointed or remain in the role if he or she is under insolvency, provisionally insolvent or there are pending actions to become declared insolvent. Insolvent means that the person has failed to pay debts and action has been brought about through a court to liquidate (cash in) the person’s estate. Everything the person owns is sold off and the money is used to settle the unpaid debts as far as possible. This is not at all the same as being blacklisted because following the insolvency, the person will not own anything, and may not enter into credit and other similar contracts for a number of years. It stands to reason that a person who has defaulted financially to such a degree would not be suited to advise clients on their finances.
Once the basic requirement of honesty, integrity requirements and be a person of good standing have been met, and a person is appointed to the role of representative, he or she will still need to become competent. Under FAIS, in order to be fully competent, a number of requirements must be met within specific time periods. In short, the Fit and Proper competency requirements for F&I’s include the following:
Minimum experience
An F&I must have 6 or 12 months experience in the financial products that they want to sell, depending on the product category in which they operate.
Representative register
The FSP must register the new F&I on the representative register. The date of their first appointment on the representative register is called the DOFA date. This date is important as you are only allowed to work under supervision for a period of six years of registration on the representative register. During this period, the F&I must comply with the FAIS Fit and Proper Competency Requirements.
DOFA Cut-off dates
You have 12 months from the date of her registration on the Financial Service Provider Prepresentative Register to be found competent on the Classes of Business, 24 months to write her Regulatory Examination for Representatives and 6 years to complete her Retail Insurance Qualification.
Working under supervision
You have to work under supervision until you complete all the competency requirements. The sooner you comply with all the requirements, the sooner you can work independently as an F&I agent.
Product training
Representatives must complete product specific training and class of business training relevant to the financial products for which they are authorised.
Product specific training
The FSP where the representative is employed, or the product supplier, will provide the product training to the representative.
Class of Business Training
As an accredited Inseta training provider, FAIS Forward Academy offers Class of Business Training in the following classes of business:
- Short-term Insurance: Personal Lines
- Short-term Insurance: Commercial Lines
- Long-term Insurance
Minimum qualifications
All representatives in Product Category 1 must complete a qualification recognised by the Financial Sector Conduct Authority (FSCA) for the product categories in which they render financial services, unless the representative is appointed to sell products strictly according to a script.
Competency requirements
Experience:
Hands-on working experience. The duration varies from 2 months to 1 year. Most F&I’s would need 1 year experience as a representative to cover all their product categories.
Product specific training
Product specific training refers to training and assessment on the products under which the representative has been appointed. This would include the product structure, purpose, terms and conditions, costs involved. The F&I must complete product specific training before they could be allowed to render financial services.
Class of business training
Class of business training refers to training and assessment on the relevant industry sub-sectors, for example training on long-term insurance., or training on short-term insurance. Depending on the products that the FSP sells, F&I’s would need to complete Class of Business Training in Short-Term Insurance Personal Lines, Short-term Insurance commercial lines and Long-term insurance, and this must be completed within 12 months from date of first appointment.
Regulatory Examination
As a representative, F&I’s must successfully complete the Regulatory Examination for Representatives, or RE5. Regulatory examination refers to an assessment on the legal framework in which representatives work, specifically on the FAIS Act and the FAIS General Code of Conduct. F&I’s must successfully complete RE5 within 2 years of date of first appointment.
Relevant qualification
F&I’s must complete a qualification that is recognised by the FSCA, in the product categories in which they operate. The qualification could be for example a Retail Insurance Qualification or Short-Term or Long-term insurance qualification on NQF 4, or a Wealth Management Qualification on NQF 5, but many other qualifications for example a BCom is also recognised by the FSCA. The qualification must be completed within 6 years of first appointment.
Board Notice 86 of 2018 – Working under supervision
Why must an F&I who is not yet competence work under supervision?
When a person is first appointed in a position as F&I, the person must start working under supervision to support the representative’s development, and to ensure that clients receive the best advice and service while the representative becomes competent.
The representative therefore acts under supervision until meeting all Fit and Proper competency requirements.
In addition to obtaining formal qualifications, representatives therefore need to gain certain knowledge and skills under the guidance of an experienced and qualified person in order to do the best job possible.
Debarment
If the representative fails to meet one or more requirement within the time limits listed in the above table, he or she must be removed or debarred from the position until the requirement has been met, this could also lead to dismissal.
The buildings blocks on the road to becoming an F&I.
Experience and product knowledge
Gained while working under supervision at a dealership
Class of Business (CoB)
3 classes of business, Face-to-face training, Certificates of completion
Retail Insurance Qualification (RIQ)
Preferred qualification, 3 modules, Grade 12 supplement, Distance learning combined with contact sessions, Inseta accreditation
National Credit Act (NCA)
IOB (Institute of Bankers) Exam, NCA Card, Face-to-face or online training
Regulatory Examination for Representatives (RE5)
Face-to-face or online training, Exam preparation session, Write the exam (RE5)