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Last year a bunch of, to me, whinging and whining financial advisers formed a new representative body called the National Association of Independent Financial Advisers (Naifa) mainly because they did not take kindly to the Financial Services Board (FSB) insisting that all advisers should have a have proven minimum level of knowledge.

Among other things, the FSB wants all financial advisers to be able to prove they know the parameters of the Financial Advisory and Intermediary Services (FAIS) Act.

This Act of Parliament determines how you should be given financial advice and who is allowed to give you financial advice and sell you financial products. In effect, it lays down that only licensed financial advisers can do this.

The general code of conduct attached to the legislation states that advisers “must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry”.

This general provision is followed by a list of specific provisions, which include the fact that all representations made to you must be factually correct and must be adequate and appropriate.

It became increasingly clear to just about everyone within the seven years of the Act being promulgated in 2002 that many financial advisers had simply failed to read the Act and its regulations, and if they had done so, they either appeared not to understand the legislation or simply decided to ignore it.

The main proof of this came from the increasing number of determinations flowing from the office of the FAIS Ombud, in which repeated mention was made of the fact that financial advisers, against whom determinations were made, were not adhering to the requirements of the Act and its regulations (see illustration).

The reaction to the new qualification requirements from a group of financial advisers was a torrent of abuse directed at the FSB, mainly on the basis that the advisers did not have the time to study and they had been doing the job for so long they had no need to prove themselves.

My questions are, if everyone is so skilled, who has been selling and continues to sell the dud life assurance investment policies with high costs and confiscatory penalties; who has been selling the even more deplorable property syndications; and who sold “investments” in the Leaderguard scam, among other things?

Despite the noisy opposition of Naifa members and others, the FSB has stuck to its guns – as it should have – and is insisting that the examinations be written and passed.

Sandra Dunn, the chief executive of the Insurance Sector Education and Training Authority (Inseta), tells me that so far only about 44 000 of an anticipated 140 000 people have successfully written the first-level examination, Regulatory Exam One.

The rest have until the end of June to take a first stab at passing the exam, with the end of September as the deadline for any rewrite.

This, by the way, is a new, extended deadline. And then, depending on the level of advice provided and job function in the industry, there are further examinations with new deadlines for further periods ending on various dates this year.

Many financial services companies are running in-house training courses, education institutions are offering training and Inseta has set up a training course of its own.

The Inseta learning material is available on the Inseta and FSB websites and can be downloaded free of charge to anyone wanting to make use of it. Here are the website addresses in case you, as a consumer, want to know what your adviser should be doing for you: www.inseta.org.za and www.fsb.co.za

And to make it even easier for financial advisers, Inseta is also running seminars around the country.

The first people to sign up for the Inseta courses should be the leadership and members of the new Naifa. Some seem not to have a clue about the FAIS Act.

For example, last year I wrote a column saying how disgraceful it was that Santam’s professional indemnity underwriting agency, Stalker Hutchinson Admiral (SHA), on behalf of financial adviser Deeb Risk, had decided to challenge the right of the FAIS ombud to issue determinations on property syndication complaints.

There are about seven complaints and three determinations against Gauteng-based adviser Risk, who advised mainly pensioners to put their money into imploding Sharemax property syndications. Further determinations are on hold until the outcome of the legal application.

The massive mis-selling of imploding and often fraudulent property syndication schemes has left many thousands of pensioners facing penury. Risk, backed by SHA, wants to force the impoverished investors to fight their claims in expensive, lengthy High Court battles, negating the very purpose of the FAIS ombud, which is to provide a quick and cheap mechanism for the resolution of complaints.

Financial advisers are required to have professional indemnity insurance to cover themselves against claims from consumers.

The intention of the legislation requiring advisers to have professional indemnity insurance was to provide a back-up for consumers – not to pay legal fees for errant advisers to beat up consumers.

However, with the court challenge to the ombud, it seems the insurance is more directed at funding the beating up of consumers, who have a legitimate claim against financial advisers who have given appalling advice, particularly to the elderly.

Anyway, I received a response to the column from Chris van der Walt, a board member of Naifa, which is published below, with my response.

Van der Walt’s letter came with a covering email from the Naifa chief executive, Lance Friedlande, who claims that Risk “wishes to appeal in court against a discussion by the Ombudsman”. I think he means determination.

No Mr Friedlande, it is not the determination against which Risk is appealing; he is applying to the High Court, with the financial backing of SHA, to prevent the FAIS Ombud, Noluntu Bam, from issuing any determinations she wants on property syndications.

In terms of the FAIS Act (which I suggest Friedlande reads), if Risk was appealing the determination he would first have to apply to the ombud for permission to appeal, and then the appeal would go to the FSB Appeal Board, which is headed by a retired judge.

Apart from reading the FAIS Act and writing the examinations, I would also suggest that Naifa members read the Treating Customers Fairly documentation on the FSB website. This is a new regulatory regime that the National Treasury and the FSB are implementing, and it will place additional responsibilities on financial advisers to treat you properly.

This includes properly investigating products and not selling you lemons, driven almost entirely by how much commission is earned, as has been the case with most property syndications.

Next week is the National Budget, but I will return to this matter next month, dealing in more detail with the need for financial advisers to do proper due diligence checks before they sell products to you.

Letter from NAIFA to Personal Finance

I refer to the article, quite bereft of logical consistency, by Bruce Cameron in the November 26 (2011) issue of Personal Finance.

You will recall that the story discussed a consumer complaint lodged with the financial services ombud against a financial adviser over a R1.4-million investment in Sharemax. To qualify for the ombud’s jurisdiction, the complainant had to reduce the claim’s value to R800 000. The ombud ruled in favour of the complainant – a result that is now being challenged in court by the adviser and his insurers – a challenge against which Cameron strenuously objected.

Cameron argued that not only would the consumer suffer as a result of the case having gone to court, but that all consumers would find themselves in the same boat. Disingenuously, he extended this premise to include all consumers. All who dared be involved with the adviser – even indirectly – were thereby cast in an anti-consumer guise.

Cameron is surely aware that a determination by the ombud can be made in one (or combination) of three ways:

* normatively;

* substantively; or

* based on fairness.

The problem is, the introduction of fairness as a criterion embodies an element of subjectivity and uncertainty. There can be no fairness in the present case, where the complainant had to forgo a substantial R600 000 for the privilege of letting the ombud make a determination.

A case for redress to the courts is self-evident from these facts. Indeed, it would place the consumer in a far better potential situation. Consumers deserve less eclectic ideology and more legal certainty.

Advisers’ legitimate expectations are not currently being met by regulators. As long as their calls to scrap unjust provisions and the unjust application of rules continue to be ignored, the legitimate assertion of individual rights will grow. Regrettably, only thus will the powers-that-be sit up and listen.

Increasingly, informed consumers are appreciating the value of independent financial advisers, who are fully prepared to stand up for their clients’ rights. Independent financial advisers are deeply concerned that the continuous erosion of their rights and reputation will ultimately harm consumers.

Chris van der Walt

Board member of Naifa

Dear Mr van der Walt,

Firstly, let me quote the Financial Advisory and Intermediary Services (FAIS) Act, which you do not seem to have read or do not understand. It states: “The objective of the ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all circumstances…”

As you stated and I stated in my original column, there is a R800 000 limit to the awards for compensation that may be made by the ombud. To claim a greater amount, the complainant would have to take the matter to the High Court.

Now Mr van der Walt, you try disingenuously to make out that the complainant, 72-year-old widowed pensioner Elise Barnes, is being deprived of her rights because she has taken her complaint to the ombud, forgoing R600 000 of R1.4-million potential claim. If she had gone to the High Court, she could have claimed the full R1.4 million, but pray, Mr van der Walt, you do not explain how Ms Barnes would fund the High Court action and what she will live off in the meantime.

You may judge the situation by how much money you have in your bank account, but Ms Barnes has been virtually cleaned out by the advice she received from adviser Deeb Risk to invest in Sharemax. She had no choice but to surrender part of her claim. She does not have enough money to maintain her retirement years, let alone fight High Court cases. But seeing you feel so strongly about her rights, why don’t you and your organisation fund her full claim against Risk in the High Court? Put your money where your mouth is.

You also do not deal with:

* How long it can take to get a matter finalised in the courts. Remember, Ms Barnes is 72 years old and this could wind its way over years all the way to the Constitutional Court.

* How the scales would also be massively against Ms Barnes, with Risk being financed by Santam and indirectly by its owner, Sanlam.

This claim of yours is as cynical and as uncaring as the famous misquote attributed to Marie Antoinette: “Let them eat cake.”

And the other thing you fail to mention is that there have also been determinations against Risk and there are other complaints in the wings that do not exceed the R800 000 limit. SHA is challenging the ombud’s right to make determinations in all these cases, and the column you criticise stated as much.

Yes, I agree that consumers need sound financial advice, but you do not seem to care a hoot about consumers, or about the thousands who have lost money in property syndications and other schemes because of appalling commission-driven advice.

What sums it up is your paragraph: “Advisers’ legitimate expectations are not currently being met by regulators. As long as their calls to scrap unjust provisions and the unjust application of rules continue to be ignored, the legitimate assertion of individual rights will grow.”

This does not seem to show any concern about consumer rights. It strikes me that all you are trying to do is abuse free publicity in Personal Finance to curry favour with the malcontents and unskilled in the industry to sign them up for membership of your organisation.

On the basis of your letter, if I was in the market for financial advice or products, I would be very cautious in dealing with members of your organisation.