Page 81 - Profile's Unit Trusts & Collective Investments - September 2025

The CIS industry Chapter 4

Tied brokers, IFAs and RDR
Independent financial advisers (IFAs) are brokers who are licensed to place investments with
more than one product supplier. A tied broker, on the other hand, is a financial adviser who
sells products for a single supplier. But IFAs, although nominally independent, are often
incentivised by product suppliers in various ways, and these incentives can introduce bias. The FSCA
has made changes to the General Code of Conduct under the FAIS Act that oblige advisers to declare
any conflicts, to declare if they earn more than 30% of their remuneration from a single source and to
ban the acceptance of any establishment fees and incentives from product providers.
The Conduct of Financial Institutions (COFI) Bill is likely to also include new labels for financial advisers
that will oblige them to disclose to investors the level of their independence from product providers.
The proposals so far suggest product supplier agent (PSA) for tied broker and registered financial
adviser (RFA) in place of IFA.

The introduction from September 2024 of
the two-pot retirement system is expected
to result over time in greater preservation
of retirement savings as two-thirds of all
contributions made by members of most
funds after this date will have to be preserved
until retirement. Currently, members are
allowed and typically do, withdraw all their
savings when they resign.
The new system has resulted in 2.5 million
members withdrawing more than R43bn in
the first four months after implementation, but
it is likely to result in an increase in retirement
savings invested in collective investments
over time.

Financial advisers (brokers)
Brokers, or financial intermediaries, have always played an important part in the CIS industry.
Before 1998, initial costs, which included 3% commission payable to brokers, were regulated by the
industry. Since fee structures were deregulated, however, financial advisers may be remunerated in
a variety of ways, including trailer fees in the form of ongoing advice fees.
The Financial Advisory and Intermediary Services (FAIS) Act and its General Code of Conduct
emphasise the need for financial advisers to determine the suitability of financial products in
the context of an investor’s needs. Financial advisers need to be able demonstrate that they
recommended appropriate solutions; it is no longer feasible to fall back on legacy justifications like
brand reputation or historical performance data that ignores risk factors.
The RDR proposals seek to make the distinction between tied brokers and independent brokers
more clear-cut, especially as understood by consumers.
It appears that most South Africans need the services of brokers to help them with their financial
planning and investment decisions. As a retail investor, the differences between funds, platforms,
multi-managers and DFMs are bewildering – and that’s before facing passive vs active, retirement
wrappers, tax free saving accounts (TFSAs), and other options.
Many management companies – either directly or via platforms – work through both “tied” and
“untied” (independent) financial advisers, where the former exclusively offer the products of a single
channel and the latter (in theory at least) offer a broader choice.
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

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