As discussed in 2.3.1the insurance laws currently use the term “independent intermediary” to refer, in effect, to any intermediary other than a single insurer’s representative. In most instances, these so-called independent intermediaries are in fact advisers contracted to multiple product suppliers – sometimes a very small number of them – to distribute their products. They are usually remunerated in the form of commission paid by the insurers concerned.
It is proposed that the term “multi-tied” more accurately describes this type of relationship between intermediaries and product suppliers. The term “multi-tied” is not currently used in South African legislation, and its introduction will require changes to the existing FAIS, insurance and certain other legislative frameworks.
Breaking down the term “multi-tied”, the “multi” component means that the adviser provides advice on the products of more than one product supplier, while the “tied” component means that – unlike an IFA – the nature of the contractual, ownership or other relationship between the intermediary and any one or more of the product suppliers concerned is such that the intermediary has the potential to be directly or indirectly influenced – or could be seen to be influenced – to recommend the products of those product supplier / s. For these purposes, “product supplier” includes an associate, agent or representative of such product supplier. A financial adviser that does not meet the requisite criteria in relation to product and product supplier choice to be classified as an IFA, but is also not a tied adviser, will also be classified as a multi-tied adviser, regardless of whether or not the adviser’s relationship with any product supplier / s entails the type of influence described above.
Proposal P: Criteria for multi-tied advisers
A financial adviser is a multi-tied adviser if the adviser is not a tied adviser and also does not satisfy the criteria to be described as an IFA. This would be the case where the adviser for any reason (including the adviser’s own choice) does not meet the requisite criteria in relation to product choice and / or freedom from product supplier influence required to be described as an IFA, as described in proposals M and N. Without limiting the generality of this requirement, an adviser will not satisfy the criteria to be described as an IFA where any of the situations listed in Proposal N apply.
Where any of the situations listed in Proposal N apply, additional conduct standards will be set to ensure that any actual or potential conflicts of interest arising from such situation are managed. These will include:
O Specific standards to limit the extent to which any of the above situations may apply unequally across the different product suppliers on whose products the adviser may provide advice or otherwise limit conflicts in this regard
O a requirement for the multi-tied adviser to keep specific records, in a manner to be prescribed by the regulator, of the proportion of business placed with the product supplier / s concerned and to document a motivation for any proportion of business that suggests a preference of such product supplier / s’ products over those available from other product suppliers whose products the adviser is able to recommend. Such records and motivation must be provided to the regulator on request.
Note that for purposes of this proposal, references to product suppliers and products apply equally to investment managers and their investment portfolios in relation to which advice may be provided.
Also note the provision in proposal K empowering the regulator to determine, inter alia, that a particular adviser does not comply or no longer complies with the standards applicable to being a multi-tied adviser and that the adviser or entity concerned may no longer be so described or purport to provide advice in such a capacity. Using this power, in cases where the regulator determines that an adviser’s relationship with one or more particular product supplier is such that there is an inappropriate bias in favour of such product supplier or its products, the regulator may direct the adviser to take necessary steps to ensure fair customer treatment and prevent customers from being misled as to the status of advice provided. (For example, the regulator could direct that the adviser either change its relationship with the product supplier/s concerned, or henceforth only purport to offer products from a more limited range of suppliers or operate as a tied adviser.)
Where financial customers receive advice from a multi-tied adviser, it is important for them to understand the scope and limitations of any such advice.
Proposal Q: Status disclosures to be made by multi-tied advisers
Conduct standards will be set requiring a multi-tied adviser to disclose the following matters to customers at appropriate times:
O That the adviser is a multi-tied adviser and an explanation (which may be standardised) of what this means
O The identity of the product suppliers with whom the adviser has a tied relationship and appropriate details of the nature of the relationships concerned
O Appropriate details of the range of product types offered by the product suppliers concerned in relation to which the multi-tied adviser is able to provide advice, including any limitations on such ranges
O Appropriate details of the proportion of products in fact recommended over a period (for example the past twelve months) in respect of and, where applicable, remuneration earned from, each of the respective product suppliers with whom the adviser has a tied relationship, with an appropriate explanation for preferring one or more of these product suppliers, where applicable
O Appropriate details of the range of product types and specific products offered by the product suppliers concerned, that the adviser has in fact recommended over a period (for example the previous twelve months), with an appropriate explanation for preferring a particular product type or specific product, where applicable.
A multi-tied adviser will also be prohibited from using the term “independent” in relation to the advice it provides or otherwise creating the impression that the adviser or advice is independent or free of product supplier influence.