Page 84 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 4

What is a LISP?
A Linked Investment Service Provider, also known as an investment index, is a financial institution which
packages, distributes and administers a broad range of unit trust based investments spanning voluntary to
retirement planning products. Any investment made through these products provides a client a single entry
into a selection of investment elements whereby a financial advisor assists in designing a suitable investment plan. Note
that LISPA (the industry association for LISPs) merged with the ACI, the LOA and IMASA to form ASISA in 2008.

Since March 2015 the FSCA (then FSB) has taken responsbility for the disclosure requirements
of unit trusts and other collective investments – a function previously assigned to ASISA. FSB
Notice 92 maintains and extends ASISA’s long-standing disclosure rules. Saleint points of Notice
92 include the following:
Managers must ensure that all communications (including adverts) are appropriate, clear
and fair
All funds must produce quarterly MDDs (minimum disclosure documents) that conform to
the FSCA model
Performance figures must be truthful, objective and representative
Managers must lodge with the registrar copies of all adverts, MDDs, application forms and
other marketing material
The Linked Product Companies
The FSCA defines a LISP as a service provider whose business consists wholly or partly of
“implementing and or capturing investment instructions received from investment managers on
behalf of clients in units in a collective investment scheme on the basis that such units are
purchased and held in bulk or repurchased in bulk”.
LISPs have been described as “unit trust warehouses” or “fund supermarkets”. They play a
significant role in the industry, and have at times been responsible for up to half of all inflows into
unit trusts and over a third of all assets under management.
A LISP can be registered as a discretionary or non-discretionary service provider.
A discretionary service provider makes and implements investment decisions on behalf of clients,
whereas a non-discretionary service provider provides facilities for buying, managing and
switching investments but does not get involved in decision making.
Most of the bigger, more successful linked product companies are associated with banks or life
insurance companies and use the bank’s client base to sell their products. LISPs offer two main
advantages to investors. The first is the ability to buy units across a wide range of management
companies through one service provider. The second is the ability to switch cheaply from one fund
to another across the industry (ie, not just within one management company).
LISPs have been largely responsible for the narrowing of the gap between wholesale products
and retail products. In the late 1990s, retail investors paid initial charges of 5% while wholesale
rates (to institutional clients) were a fraction of a percent. By negotiating wholesale rates and
passing these on to the retail market, LISPs changed investors’ perceptions of what they should pay
in charges. Competition amongst LISPs has been an important factor in a broad industry move
away from initial fees. LISP online platforms have also contributed to downward pressure on
annual fees.
If this is a positive influence of the LISP movement, one negative has been the increased
churning in the industry. The term “churning” derives from the 1980’s bull run when certain US
brokerage firms were guilty of buying and selling shares aggressively for clients, mainly to earn
brokerage fees, and with little concern for investment performance. Anton Kok, previous chairman
of the AUT, estimated that the unit trust industry had gross inflows of R101 billion in 1999, but
net inflows of R500 million. This means that 96% of money flowing into unit trust funds was
flowing out of competitor funds (ie, simply moving around the industry). Kok estimated that

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