We review the implications of the FSB’s marketing guidelines for South African fund managers. What do they really mean?
In South Africa, the financial services sphere has long been accused of being too opaque in its communications with clients and investors. Historically, fund managers in particular have used technical language, replete with investment jargon, and failed to explain the calculations associated with individual portfolios. Naturally, this has gotten in the way of customer relationships that rely on trust and transparency to be successful in the long term. In addition, advertising and marketing documents relating to management schemes have sometimes been perceived as misleading, and/or failing to provide critical information. Arguably, this dynamic has created tensions in a marketplace whereby tech savvy consumers feel the right to have access to information.
To address this worrisome gap in communications between asset managers and investors, new rules have been introduced: Board Notice 92 of 2014 sets out clear guidelines pertaining to how managers of collective investment schemes (both local and foreign) may market and advertise schemes in South Africa. This is a positive step for all stakeholders, although the guidelines may require certain fund managers to make some important operational changes in order to comply.
Under the new stipulations, all advertising material, fund fact sheets, application forms and minimum disclosure documents (MDDs) must now be submitted to the Financial Services Board (FSB) for review. Managers can submit the material via the FSB’s online portal, and receipt will be acknowledged electronically. The material can only be distributed to clients/investors upon acknowledgement of receipt (unless the Registrar of Collective Investment Schemes objects to the material - which the Registrar must do within 30 days).
One of the most significant changes introduced is the requirement of an MDD for investors, which must be updated quarterly - and lodged quarterly - with the Registrar. Importantly, an MDD must be prepared in respect of each portfolio, and must contain the prescribed information in such a way that it is accessible to an investor. Moreover, investors must be provided with the MDD in the prescribed form prior to investing, topping up, or switching an existing investment. Although managers may provide the MDD to an investor in any medium/form, the investor must specifically select that medium or consent to the provision of information in a certain form. To ensure compliance, managers will be required to prove that the MDD was provided to an investor in the manner set out by the guidelines.
In line with the industry shift towards transparency, the required MDD should not be longer than four pages – and must be written in ‘plain language’. The information and presentation should naturally adhere to the general principles of legality and honesty. With regards to the information, the disclosures must cover fund objectives, fund risk profile, performance and costs. CIS funds must also report on asset changes and how the fund performance measures against the fund’s stated objectives.
Ultimately, every MDD that is prepared is intended to ensure that investors have all the information they need (in a highly accessible form) to make sound, informed financial decisions.
While the new requirements may seem onerous and/or time consuming for asset managers, it is undoubtedly a positive step forward and in fact creates new opportunities for managers to strengthen customer relationships.
Watch this space for more on how MDDs can actually boost your market standing.