Page 79 - Profile's Unit Trusts & Collective Investments - March 2026

The CIS industry Chapter 4

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 76).
The first draft of the RDR proposals in 2014
implied that commission-based models of
remuneration for brokers were under threat,
but it has since been acknowledged that
broker commissions may be necessary,
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.

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