Page 78 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 4 The CIS industry

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.

for older RAs or preservation funds that were established before and have not been amended since
complaince with Regulation 28 on an individual, rather than fund level, became a requirement in
2011.
The growth of umbrella retirement funds – offering employers the option to participate in
professionally managed and cost-efficient funds established typically by financial institutions –
has also resulted in growth in the number of retirement fund members who are offered a choice of
underlying unit trust investments for their retirement savings.
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 millions of members withdrawing billions of rands from their
savings pots, 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.
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. Policymakers are attempting to
make is easier for consumers to distinguish between tied and independent brokers.
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 supplier must
be clear – customers have a right to know if any limitations or restrictions imposed on the broker

76 Profile’s Unit Trusts & Collective Investments March 2026