Da Silva, who is deputy executive officer of the Financial Advisory and Intermediary Service at the FSB, said suppliers will be responsible for their products at all times, “but if they have any influence at all over a registered financial adviser (RFA) they are going to take responsibility for the adviser as well”.
“What we are saying is that accountability is now shared between the RFA and the product supplier,” Da Silva told delegates at International Adviser conferences in Johannesburg and Cape Town in late May.
“The shift is in terms of putting everybody back into the same boat, and that boat is rowing for the customer and everybody is responsible and accountable for the customer outcome,” she said.
Two phases
Product suppliers in South Africa encompass both fund management companies and life insurance companies, as well as linked investment service providers.
The new responsibilities will form the final phases of the legislation to implement RDR. Under South Africa’s RDR there are a total of 55 specific regulatory proposals to be implemented in phases.
A set of 14 RDR proposals were implemented earlier this year and identified as “Phase 1.”
Da Silva said Phase 2 of RDR was expected to be implemented when the so called “Twin Peaks Bill” is passed.
This bill will split the FSB into the Financial Sector Conduct Authority (FSCA) and shift the regulator’s prudential work on to the Prudential Authority at the country’s Reserve Bank.
“We anticipate that bill will be approved this month and then it has to go to the president for signature,” she said.
The third and final phase of RDR will come into force after the proposed Conduct of Financial Institutions Act (COFI) legislation, which covers market conduct across the sector – insurance, collective investment schemes, pension etc – is passed.
“The first draft of COFI, the Treasury want to have available at the end of July. They want this to go to parliament in the first quarter of next year. So, I think we are talking about a two-to-three year time line,” she said.
Two types of IFA
Once implemented there will be only two types of IFAs in South Africa. The registered product supplier agent, or tied financial adviser, who works for a single product supplier and sells only that supplier’s products. And the registered financial adviser, or independent adviser, who cannot have any product supplier influence in its business in any way.
To meet the licence requirement to be an independent RFA, an advice firm will have to demonstrate that it has no relationship with any product supplier that could be perceived as giving the supplier influence over its advice.
This includes no ownership interest, no binder fees, no outsourcing fees, no profit shares, no cell arrangements, and no joint venture arrangements.
For tied agents, Da Silva said there had been some softening in the requirements proposed in the initial RDR plan that all administration fees on a product supplier’s platform should be the same for all offerings, and that all offerings should be featured with equal prominence on the platform menu.
Da Silva said the FSB has decided that where a tied agent uses an administrative platform from a supplier that offers open architecture, “we won’t regard that as a breach of the tied agency because open architecture is the norm is South Africa, and we think the other things that we are doing to manage conflict of interest in the investment space allows us to make that deviation”.
“The second thing is that we are moving to towards clear pricing. We are proposing that any product listed on a platform should attract the same fees and costs,” she said.
