Page 82 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 4

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 advisers 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
advisers 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 adviser to justify why a product – especially
where there is an additional personal incentive for the adviser – 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 advisers operating in the local market.
The Financial advisery 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 are 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
advisers.

80 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts