DISCRETIONARY FUND MANAGERS FEATURE
NEWS & OPINION
GERRY GRISPOS Senior Compliance Officer, Compli-Serve SA
RDR and investmentrelated matters No one in financial services is a stranger to the Retail Distribution Review (RDR), but the answers to some questions remain unclear, with the eventual result of how RDR will affect the investment world, equally opaque. A concern among these is clarity on demarcating roles and customer value propositions, particularly when a financial services provider (FSP) offers both financial advice and discretionary investment management services to the same clients. The Financial Services Conduct Authority (FSCA) recognises the potential risks and conflicts of interest, with the following proposals set out in a discussion document, distributed for comment: 1. Category II FSPs will be assessed against a list of four activities to ascertain whether the FSP is involved in Cat II activities or not (e.g. Portfolio construction, management of CIS/Wrap Funds/ Internal Portfolios). 2. Cat IIs will have to adhere to the new ‘Fit & Proper’ Standards, depending on their classification – and will perhaps have to earn more CPD points. 3. Authorised Representatives within these FSPs will either be classified as Product Supplier Agents (PSAs) or Registered Financial Advisers (RFAs). The above appears simple enough but let me illustrate, by way of an example, the potential problem with these proposals. An FSP that has a co-branded Collective Investment Scheme with a local Manco will, under the proposals, have its authorised representatives classified as PSAs, as it has its own funds. This means that the representatives will only be allowed to advise on the FSP’s funds and not on any other outside funds. These representatives cannot be both PSAs and RFAs, and so the scope of the advice given is severely
restricted. The question that begs to be asked is whether these proposals are in line with Treating Customers Fairly (TCF)? Another area of great confusion is whether or not an FSP can be both a Cat I and Cat II (i.e. able to provide advisory, intermediary and discretionary services from one license). The Regulator is keen to separate such functions (i.e. have a separate license for Cat I and for Cat II), perhaps restricting the fees earned by the same person fulfilling all three functions.
THESE CHANGES COULD REQUIRE RESTRUCTURING FOR SOME FSPS TO BE COMPLIANT With 21 measures to consider in the review process in determining how an FSP may be classified – coupled with much feedback from the industry on RDR proposals already (of which many of the 55 original proposals are being taken forward) – the FSCA has some challenges ahead in deciding how best to implement new regulations that are clear and not open to misinterpretation. While potentially positive elements may come out of the RDR proposals – such as providing total disclosure to clients on costs benefitting them best – it’s going to be interesting to see the final outcome. Some further clarity is anticipated once all comments to the discussion document have been assessed by the FSCA, and passed into law. These changes could require restructuring for some FSPs to be compliant, but as things are still murky in the proposal stage, it would be prudent to keep an ear to the ground, and to consult with a compliance officer as to how adaptable an FSP might need to become.
6 WWW.MONEYMARKETING.CO.ZA
31 May 2019
Making a distinction between financial planning and managing assets
M
orningstar Investment Management South Africa (Pty) Ltd is part of Morningstar’s Investment Management group, a global investment advisory business that services a variety of clients around the world. As a leading provider of independent investment research, Morningstar Investment Management has established a discretionary investment business in South Africa to provide research-driven, innovative investment consulting services and managed portfolios to the local market, including asset managers, wealth managers, family offices and advisers. Morningstar differentiation What sets Morningstar apart is that we offer independent investment management services (DFM), portfolio construction, governance and operational support. In addition, advisers have access to our proprietary financial tools and a truly global research business to support their practices. With average industry experience of more than 10 years, the South African-based investment professionals use their knowledge of local markets to help design and manage investment portfolios on behalf of clients. The global research team consists of more than 100 analysts and their proven track record has resulted in global assets under management exceeding $209bn (as at 31 December 2018). Drawing from our global resources, Morningstar Investment Management South Africa has developed Morningstar Managed Portfolios. Our risk-profiled range of local and global (US$ denominated) portfolios provide advisers with actively managed, diversified and cost-effective solutions for both pre- and post-retirement clients. The Managed Portfolios are available on most platforms in South Africa, with no minimum investment criteria. In addition to the above, Morningstar also offers bespoke investment consulting services for advisers that look to create unique partnerships to assist with local and global fund research, award-winning asset allocation methodology and proprietary portfolio construction. Combining these with operational,
trade and risk management oversight provides advisers with a reliable outsourced solution to assist in helping their clients achieve their financial goals. Benefits to advisory practices: By partnering with Morningstar you can: 1. Get access to independent indepth investment expertise and resources. Financial markets are increasingly complex and the range of investment opportunities continues to grow. It’s a huge challenge to evaluate all of these and assess their suitability for your clients. 2. Focus on what you do best. You can make a distinction between financial planning and managing assets. Your clients will find it easier to understand exactly which services you provide for them – and they will be less likely to use cash returns or the JSE as a benchmark for the value you are delivering. 3. Free up time to serve clients better. Reducing the time you spend on investment decisions and portfolio construction will give you more time to spend elsewhere. This can mean opportunities to work on other aspects of a client’s financial plan, the possibility to deliver more personalised service, or simply the capacity to take on more clients. 4. Solve your capacity issues. Instead of employing in-house specialists, discretionary investment management allows you to overcome these capacity constraints and development expenses. You can concentrate on growing your business, knowing you can lean on your investment management provider to adapt to new or changing demands. Cell: +27 (0)72 268 8791 adam.benzimra@morningstar.com
Adam Benzimra, Head: Business Development, Morningstar Investment Management
