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Investment views

Investment advisors in South Africa

23 February 2018

By Jaco van Tonder, Advisor Services Director

Ever since the advent of FAIS in 2005, and the subsequent RDR white papers, many predictions have been made about how these interventions would affect the structure of the South African advice market.

Predictions have ranged from:

  • Financial advisors will leave the industry in droves, to
  • Tied advice channels will dominate the market, to
  • Product providers will buy out all independently owned advisors.

Understanding what is really happening with advisors in South Africa is difficult given the fragmented structure of the local advice market, as well as the absence of regular high quality research reports on the topic. And it does not help that anecdotes around the demise of the independent advisor are frequently offered up as part of many product providers’ sales messaging.

Given that Investec Asset Management’s South African Advisor business deals virtually exclusively through independently owned advisors (IFA), understanding the structural trends in the local advice market is a priority for us. As part of this process we contracted the services of a third-party consulting firm1 to help us analyse the trends and changes identified by the Financial Services Board’s (FSB) database of registered Financial Service Providers and their appointed representatives.

In this article we focus on the state of play for investment focused advisors2, analysing the FSB data over the period March 2013 to March 2017. For now we will only introduce a couple of the high level conclusions from our work so far – we will share further insights in future articles.

Tied vs independently owned investment advisors

Our first area of interest is the split between:

  • Advisors who operate on advice licenses of large banks/insurance companies/ product providers on the one hand (tied advisors), and
  • Advisors who operate on their own FSP license (independently owned advisors).

The diagram overleaf sets out the split between these two categories over this four-year period.

Figure 1: IFAs vs tied investment advisors

Source: PI Financial Services Intelligence report 31.10.17.

The first conclusion is that the number of employed financial advisors focusing on investments have actually grown from just over 15,000 in 2014 to over 19,000 in 2017 – a growth of almost 24% over the 4 years, or 5.5% p.a. Clearly investment-focused advisor numbers have been growing in spite of regulatory pressures.

The second take-away from this diagram is that independently owned advice firms make roughly half of the investment advice market, representing 49% of advisors in both 2013 and 2017. This data questions the often-heard assertion that independently owned advisors are abandoning the industry or busy joining large product corporate distributors. As a matter of fact the investment advisor community is growing, with both tied and independent advisor numbers growing at roughly similar rates.

For independently owned firms, how important is the size of the firm?

A second statement we often encounter is the notion that smaller IFA firms are struggling financially due to cost pressures, and that the future of the investment advice market lies with large corporate IFA firms.

The following diagram shows the breakdown of IFA firms by the number of advisor representatives operating on their license in 2017:

Figure 2: IFA employed advisors by FSP size – March 2013

Source: PI Financial Services Intelligence report 31.10.17.

From this diagram it is clear that the investment IFA market in SA continues to be dominated by firms who employ 5 or less advisors. Almost 60% of all investment-focused IFAs work for such small firms, and almost 80% of advisors work for firms who employ fewer than twenty advisors.

So how has this changed over the past 5 years? In 2013 the split was as follows:

Figure 3: IFA employed advisors by FSP size – March 2017

Source: PI Financial Services Intelligence report 31.10.17.

There does indeed appear to be some evidence here that smaller IFA firms have joined larger IFA corporates. The diagram shows a migration of about 7% of investment IFAs from small FSPs (5 or less advisors) to larger practices (with more than 21 advisors) between 2013 and 2017.


Given the shortage of high quality analyses on the state of the SA Advice market, it is all too easy to fall prey to marketing slogans and media messaging on the health of the South African financial advisor market.

Contrary to industry perception our analysis of the FSB’s database of registered financial advisors seems to indicate that:

  • The South African investment advice market is healthy and growing, providing employment to increasing numbers of financial advisors.
  • Independently owned financial advisors continue to represent well over half of all investment advisors in the local market, with no real change in market share over the past five years.
  • Whilst there is some level of migration happening from smaller FSPs to larger FPPs, smaller wealth management firms continue to be the most popular business model for advisors by a substantial margin.

Important Information

1PI Financial Services Intelligence.

2FSPs who hold Category 1 FSP licenses for Long Term Insurance B1/B2/C, CIS and Retail Pensions.

All information provided is product related, and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium- to long-term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing, up to 10% of fund net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Asset Management and Investec Investment Management Services are authorised financial services providers. Issued: February 2018.

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