Page 86 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 4

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, if only because alternative models are problematic for the industry
and 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.
The Durr vs Absa case put the onus on the
financial advisor to justify why a product –
especially where there is an additional
personal incentive for the advisor – 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 discretionary fund management businesses
(DFMs) and the sharp decline in the number
of truly independent financial advisors
operating in the local market. (see page 80)
The qualification and licensing
requirements for all financial intermediaries
introduced in 2003 in terms of the FAIS Fit
and Proper Determination (amended and
updated in December 2017) has improved the
service offered to investors by brokers.

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