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

Chapter 4 The CIS industry

that the nature of the relationship between an intermediary and one or more product supplier 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 Bank 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
DFMs and the sharp decline in the number of
truly independent financial advisers operating
in the local market.
The 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 September 2025