Page 82 - Profiles's Unit Trusts & Collective Investments - September 2024

CHAPTER 4

According to the FSCA’s RDR
Discussion Document on Adviser
Categorisation and Related Matters,
published in December 2019, financial
services customers should be in a
position to clearly understand what
services intermediaries provide and in
what capacity they act. The latter
means that the nature of the
relationship between an intermediary
and one or more product suppliers
must be clear – customers have a right
to know if any limitations or
restrictions imposed on the broker
affect the advice given and the products
offered. To this end the FSCA has
proposed new terminology that better reflects the relationships between advisors and product
suppliers (see box on page 79).
The first draft of the RDR proposals in 2014 implied that commission-based models of
remuneration for brokers were under threat, but the latest RDR updates suggest that broker
commissions are here to stay, particularly on low-cost products that require higher remuneration for
advisors and where advice fees are unpopular with consumers.
The position of brokers in the industry changed dramatically in 1997 when a landmark court
decision was made in favour of the investor in the now famous Durr vs Absa Bank case. The particular
broker and his employer, Absa, were held liable in delict for the damages suffered by an investor who
was negligently advised to invest in Supreme debentures and preference shares in 1989.
The Durr vs Absa case put the onus on the financial advisor to justify why a product – especially
where there is an additional personal incentive for the advisor – should be used. Under the FSCA’s
RDR proposals, an investment process that is compliant with the regulatory framework grows ever
more demanding – this is a major factor in the rise of discretionary fund managers (DFMs) and the
sharp decline in the number of truly independent financial advisors operating in the local market.
The Financial Advisory and Intermediary Services (FAIS) Act which became effective in 2004
introduced the General Code of Conduct for financial advisers. The code obliges advisers to ensure
products recommended for consumers areu suitable for them and that they understand what they
are buying or investing in. The qualification and licensing requirements for all financial
intermediaries introduced in 2004 in terms of the FAIS Fit and Proper Determination (amended
and updated in December 2017) has improved the service offered to investors by brokers and
advisors.

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