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Press Offices > Associations

Association for Savings and Investment South Africa
Press Office Feature : ASISA takes issue with Morningstar rating for South Africa

Company: Association for Savings and Investment South Africa
Author:Lucienne Fild
Email:[email protected]
Posted:17 Jun 2015

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Reputational damage to the South African Collective Investment Schemes

The Association for Savings and Investment South Africa (ASISA) has expressed its disappointment with the fundamental inaccuracies contained in the Morningstar 2015 Global Fund Investor Experience Report, which resulted in the C rating assigned to South Africa. The report was released globally last week.

Leon Campher, CEO of ASISA, says the same concerns were raised with Morningstar South Africa in 2013 when South Africa was assigned a D rating.
Campher says ASISA is deeply concerned about the reputational damage to the South African Collective Investment Schemes (CIS) industry caused by the inaccurate information contained in the report and the subsequent below average rating.
Every two years Morningstar evaluates 25 countries out of the 27 where the company has operations using four categories that are weighted to calculate the overall grade: Regulation and Taxation, Disclosure, Fees and Expenses, and Sales and Media.
Campher says the Report contains two significant misconceptions about the South African Collective Investment Schemes (CIS) industry. These are the same misconceptions that ASISA had taken issue with in 2013 and 2011 and fall under Regulation and Taxation and Sales and Media.
Regulation and Taxation
In the Overall Country Scores section of the Morningstar Report under Regulation and Taxation it is stated that: “In Morningstar’s view, the best regulatory practice is to have a single regulator that is independent of the fund industry. The regulator is responsible for overseeing the management, disclosure, operations, and distributions of all types of investment funds. As an independent entity, the regulator does not face the conflicts of a self-regulatory body, which must balance the desires of the industry with the need to protect investors.”
In the Country Detail section of the Report under the Regulation and Taxation heading Morningstar then states that: “The Association for Savings and Investment South Africa (ASISA) is a self-regulatory body that works with the fund industry.”
Campher says this is a fundamentally flawed statement as the industry is regulated by the Collective Investment Schemes Control Act (CISCA), which is enforced by the Financial Services Board (FSB). “ASISA is a trade association and not a self-regulatory body,” he explains.
“The CIS industry of South Africa therefore has a single regulator that is independent of the fund industry, which according to Morningstar is the best regulatory practice to have,” says Campher.
Campher adds that there are only two self-regulatory bodies in the South African financial services industry, namely the JSE and Strate, which is South Africa's Central Securities Depository. Both are supervised by the FSB.
Sales and Media
Under the heading Sales and Media in the Report’s executive summary it is stated that: “Large financial institutions account for more than half of fund sales, which translates to a greater number of advisors selling in-house products rather than presenting their clients with all possible choices.”
Campher points out that this is not true. “The bulk of the CIS flows are attracted by CIS management companies that have no tied agents. The 12 biggest CIS management companies manage 82% of assets, excluding money market funds. Seven of these companies do not have tied agents, yet they manage 65% of this 82% share of CIS assets.”
In conclusion, Campher says it is extremely distressing that Morningstar has again failed to verify the facts before rating the investor experience of the South African CIS industry.
It is also disappointing that the Report does not take into consideration any of South Africa’s accomplishments, as highlighted in the World Economic Forum’s Global Competitiveness Report for 2014–2015, which play a fundamental role in the experience that local as well as foreign investors have when dealing with the South African financial services industry.
The Global Competitiveness Report referred to above ranks South Africa first for “Regulation of securities exchanges” and “Strength of auditing and reporting standards.”

We are ranked third for “Financing through the local equity market” and “Efficacy of corporate boards.” Our “Availability of financial services” ranks in sixth place.

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