Page 83 - Profile's Unit Trusts and Collective Investments 2021 issue 2

The CIS Industry

Tied Brokers, IFAs and RDR
Independent Financial Advisors (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 advisor 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. Under
proposed RDR regulations IFAs will no longer be allowed to earn bonuses from a supplier by reaching
agreed sales targets. Advisors will also have to disclose, in future, if they are tied or independent.
Note that under the latest RDR proposals new terminology may in future come into effect. The RDR
suggests PSA (Product Supplier Agent) for tied broker and RFA (Registered Financial Advisor) in
place of IFA.

With the advent of the Collective Investment Schemes Control Act (CISCA), the AUT changed
its name to the Association of Collective Investment Schemes (ACI). Under CISCA, the ACI
became a licensed body in terms of Part III of the Act. Schedule 4 of the Act sets out the matters to
be provided for in the rules of association. By licensing the ACI under the Act, the legislation
allowed a degree of self-regulation according to prescribed requirements.
ASISA was formed during 2008 by members of the ACI, the Investment Management
Association of South Africa (IMASA), the Linked Investment Service Providers Association
(LISPA) and the Life Offices’ Association (LOA). ASISA replaced the ACI as the licensed body
tasked with self-regulation of the collective investment schemes industry, to the extent permitted
under Schedule 4 of CISCA.
As an industry association, a core function of ASISA is the formulation of best practice
guidelines for members. When it comes to policy and regulatory matters, ASISA also serves as a
conduit between members (such as fund managers) and the regulator (the FSCA). ASISA plays an
important role in the creation and distribution of industry statistics and in promoting collective
investments as savings vehicles.
A key role of the ACI was lobbying for legislative changes, an objective which ASISA continues.
As the AUT, for example, the industry body was instrumental in obtaining a tax exemption from
CGT for the collective investments industry.
Note that membership of ASISA is not compulsory although it is strongly encouraged by the
FSCA. The majority of unit trusts available in South Africa are members of ASISA, but some
continue to stay outside of the industry body. Non-members circumvent some of the disclosure
requirements of ASISA and their fact sheets, therefore, demand greater scrutiny on the part of IFAs
and investors.

The FSCA (formerly the FSB)
During the course of 2018, as part of the restructuring required by the Financial Sector
Regulation Act of 2017 (FSRA), the Financial Services Board (FSB) became the FSCA (Financial
Sector Conduct Authority).
In terms of the FSRA, certain functions currently performed by the FSCA will shift to a
prudential authority to be housed under the SARB (South African Reserve Bank) – see chapter 5
for more details. As at August 2018, however, the new FSCA continues to manage the functions of
the former FSB.
The Financial Sector Conduct Authority (FSCA), a quasi-government body funded by the
financial services industry, is the regulatory body of the CIS industry. The Registrar of Collective
Investment Schemes is an official of the FSCA. Collective investment schemes must be registered
with the FSCA in order to operate legally.
All collective investment schemes are obliged to submit details of their portfolios to the FSCA
every three months, as well as an annual report. The purpose of this monitoring is to check that
CIS managers are not falsifying their performance and that fund managers are investing according
to their deeds.

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