By Guy Holwill
In this article, I consider the likely impact of the looming Conduct of Financial Institutions (COFI) conduct standards on the sole proprietor business model, and what you should be thinking about if you are a sole proprietor today.
I need start with a big caveat. We are certain that COFI is going to disrupt our world. However, the COFI Bill still needs to go through parliament to be officially published as an Act. We will then need to wait for all the underlying conduct standards to understand the exact impact. Despite this, we are crystal clear on the direction that COFI is taking us, which means that an article of this nature is far more than mere speculation.
To give you an idea of the regulator’s intent and the scope of changes that COFI will bring, here is a brief extract from the Executive Summary of the Financial Sector Conduct Authority (FSCA) Regulatory Strategy 2025-2028 that was published on 6 May 2025 (with my highlights):
“As the financial sector continues to evolve, our strategy focuses on continuity, adaptability, and proactive responsiveness in our regulatory, supervisory and enforcement approaches. Our goal is to achieve meaningful and consistent outcomes for financial customers and maintain trust and integrity in the financial sector.
Over the period ahead, the FSCA will focus on preparing for the implementation of the COFI Bill, which will bring significant changes to how market conduct is regulated in South Africa. Key priorities include transitioning existing conduct-focused financial sector laws in a harmonised and rationalised manner into a holistic conduct regulatory framework under the COFI Bill. As part of this work, we will leverage our suptech [supervisory technology] investment through the IRS [Integrated Regulatory Solution] to simplify and modernise our licensing processes, improve our risk-based supervisory approach, and strengthen our oversight capability through enhanced data collection and analysis.”
Apart from harmonizing the different pieces of legislation, the core of COFI is consumer protection. It’s pervasive to the Bill and includes everything from making Treating Customers Fairly (TCF) law, capitalizing your business so that customers can be certain that you will be around to provide ongoing service, building a culture of customer centricity, building systems to provide data that evidences good customer outcomes, and so on and so forth.
To ensure better customer outcomes, COFI is “outcomes based” rather than “rules based”. In other words, COFI is not going to tell you what to do, but rather it will tell you the desired outcome, and you need to figure out what you are going to do to achieve and evidence this.
Being a sole proprietor is just a business model. Sole proprietor advisors may be giving their clients incredibly good advice and may be running fantastic practices. However, it is a tenuous business model for advisors and their families, because the Financial Services Provider (FSP) ceases to exist if the advisor passes away. When that happens, all commissions and fees are turned off, and the practice becomes worthless.
When you look at the sole proprietor structure from a consumer protection perspective it is even worse because all the clients are immediately stranded when something happens to the advisor. Thinking logically, if COFI is going to require all FSPs to be adequately capitalized to protect customers, then it makes sense that COFI will not allow sole proprietor structures for the same reason.
Most people seem to think that COFI will be put into effect during 2025 and that it will take 3 to 4 years for all the conduct standards to take effect. Those conduct standards are almost certainly going to disallow any further sole proprietors and may require all existing sole proprietors to be incorporated.
This means that it is almost inevitable that you will have to move away from a sole proprietor structure. Fortunately, you have three options to do this:
- You can convert to a Pty structure as many sole proprietors have done. This is perfect for advisors who want to remain on their own, but it remains problematic from a succession perspective if something happens to you, if you are the only director, KI and rep.
- You join up with other advisors to create a bigger brokerage. This a great solution if you see yourself as an entrepreneur who advises (rather than an advisor who has become an entrepreneur), but it is only viable if the other advisors have complimentary skills and access to resources because someone is going to have to build systems and someone else is going to have to inject capital.
- The third option is to join an existing bigger brokerage. This option is the easiest to implement and it makes the most sense for people who want to spend more time seeing clients and less time on business admin. However, not all big brokerages are the same, and you need to carefully assess whether there is a good fit in terms of culture, vision and freedom. Be particularly careful of brokerages that pay you to join because they are always buying something.
So why put off the inevitable. Simply pick the option that is aligned to your vision and future fit your business today.
Guy Holwill is Chief Executive and Founder of Fairbairn Consult. By combining his qualifications as a Civil Engineer and Chartered Accountant, he is passionate about building great businesses. Fairbairn Consult is a licenced FSP and member of the Old Mutual Group.
