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Advisers to get more offshore product choice via the proposed changes to Notice 2076 of CISCA
Advisers to get more offshore product choice via the proposed
changes to Notice 2076 of CISCA.
You may well ask why such an obscure notice may in fact be so important for advisers. For many years the FSB has been accused by international fund managers of not having level playing fields when it restricts their access to promoting their funds in South Africa. The reason for this claim is that to date the FSB has applied a stricter set of requirements to schemes wishing to register in South Africa than is generally applied elsewhere in the world; specifically those schemes registered primarily in UCITS regulated jurisdictions.
The restrictive regulation has prevented a number of large (and small) international product providers from registering their schemes and products for promotion in South Africa. As a consequence of this, the absence of competition from these offshore schemes has seen the local unit trusts managers establish themselves as household brands, even as it relates to managing offshore portfolios. The local offshore offerings may well be good, but they are far from a complete competitive picture.
Our research among local advisers bears this out, with many advisers defaulting to choosing local managers to manage their client’s offshore assets rather than choosing a manager located in offshore jurisdictions. The chief reason for this decision is that local advisers are unfamiliar with the offshore product providers; they prefer to deal a local service provider and trust the relationships they have established over a long period of time. At the same time some of the local portfolios managers have produced comparable offshore returns, so it has been difficult to justify the risk of placing their clients with a provider they are unfamiliar with.
Back to the rewrite of notice 2076. The FSB has now proposed changing the restrictions it previously placed on these offshore schemes, under this new notice. The FSB is now proposing that offshore schemes registered in comparable offshore jurisdictions, can now be registered in South Africa. Advisers can still take comfort in the fact that portfolios and products will still be required to approved by the FSB for solicitation here – needing to fulfil the requirements of instruments to be included in portfolios under CISCA. But this will open the floodgates and investor choice.
The good news for advisers is that besides more choice being introduced into the offshore options, these product providers will provide information, presence and support for their products as they will now be able to legitimately solicit investment funds for their portfolios.
At Fundhouse we are aware of at least five large investment houses who are keenly going about their plans to register their schemes, promote their products and service clients. Similarly there are some smaller bespoke product providers who are also looking to enter the market more selectively. (As an aside, we think that certain advisers will really benefit from having a reputable offshore passive fund at their disposal – we are watching this space keenly and will be rating passive funds too for our online client’s benefit.)
We anticipate that the changes to the regulations will become effective some time later this year and whilst we don’t envisage an immediate flood of new products, we do think that increased choice, allied with an impartial rating of offshore funds provides a timeous solution for advisers wishing to take more funds offshore for clients.
(*Fundhouse Adviser provides services directed at advisers, we don’t offer, benefit from or promote investment products. Our aim is to keep you abreast of legislation and its impact upon your practice. If you have comments on this article or suggestions, please do contact us.)