Fast little loans
There is a trend among financial advisers who encourage consumers to put their hard-earned savings into property syndication “black holes” to claim that the consumers are “discerning, smart and streetwise investors,” Financial Advisory and Intermediary Services (FAIS) Ombud, Noluntu Bam, says in her most recent annual report.
She says that these investors are given “lamentably bad advice wrapped in fancy presentations and accompanied by marketing material devoid of any fact which could enable consumers to make informed decisions”.
Yet, she says, the advisers refuse to take responsibility as “these investment houses of cards unravel one after the other, with no one prepared to take responsibility …”
Bam says another trend is for respondents to complaints to argue that they should be presented only with the original complaint of the consumer, no matter how little financial acumen the complainant has, and that her office should not be defining your complaints in a better way.
Bam firmly rejected this, saying her office is obliged to help consumers frame their complaints.
The ombud also wants to see an improvement in the way advisers undertake risk profiles of their clients. She says a typical example in considering a property syndication investment is to ask an investor: “Have you ever invested in equities and/or how comfortable are you with equities?”
She says the question is both unfair and misleading.
Bam says the FAIS General Code of Conduct requires that financial services providers render their services in clear and unambiguous language and that their explanations should make sense.
But, she says, not a single property syndication publication states in the clear language required by the code that an investor could lose a portion or all of his or her capital.
She says that with a number of advisers being “highly ignorant” of what is required of them she cannot see how the problem can be eradicated.
Bam says another trend that is causing concern is the sale of books of customers by one short-term insurer to another.
This can result in new conditions or terms being applied to policies, which in turn are not properly explained to the policyholders.
THOUSANDS OF COMPLAINTS, 25 RULINGS
The office of Financial Advisory and Intermediary Services (FAIS) Ombud resolved more than 8 000 complaints over the 12 months to March but very few finally resulted in a determination by the ombud, Noluntu Bam.
About 47 percent were referred to other dispute resolution offices, such as the ombudsmen for long- and short-term insurance, 27 percent were dismissed and about nine percent were settled. The balance was carried over to the current year.
In total there were 781 settled cases in which the complainant and the financial services provider reached agreement on a complaint, often with a bit of assistance from the ombud on who was right and who was wrong.
Over the 12 months there were only 25 actual determinations, following the peak of 91 in the year before.
Most complaints (29.2 percent) were about life assurance products, followed by 26.6 for short-term insurance, and 19.7 percent for investment products or advice, with other financial products making up the balance.
ROGUE REPRESENTATIVE AND OTHER SETTLEMENT CASES
A major problem many investors face when they have been given inappropriate advice by a representative of a big financial services company, such as a bank or life assurance company, is that the company denies responsibility for any rogue selling by its agent.
The knee-jerk reaction of companies in rejecting claims from disgruntled consumers is mainly that the representative was not authorised to sell the product which caused the problem.
But it seems that when a consumer complains to the Financial Advisory and Intermediary Services (FAIS) Ombud, Noluntu Bam, there can be a rapid change of mind.
In one of 781 settlements reached between consumers and financial services providers for the 12 months ending March 2012, one company backed off its initial rejection of a claim and paid the complainant R970 837, which is R170 837 more than the ombud is entitled to order as compensation in any single complaint.
The additional amount could be paid because the parties reached a settlement instead of the ombud issuing a determination.
The advantage for the company settling rather than relying on a determination is that its name and the name of its errant representative do not become generally known, thus averting claims from other consumers who may also have suffered losses.
In this case mentioned in the latest annual report of the ombud, the representative placed the complainant’s money in an “income-producing investment”, but it stopped paying an income after a few months.
The financial services provider “rejected responsibility for the investment and argued that the broker (representative) was not mandated to make the investment”.
Bam says that, on investigation by her office, it was found the complainant had been put into an unregulated product, but no evidence could be produced that the representative had disclosed to the complainant that he was not authorised to sell the product or that it was unregulated.
The product was marketed on the premises of the financial services provider while the representative was employed by the provider.
Bam says “the complainant could not reasonably have known that the broker invested his funds in a product not authorised by the respondent”.
On the ombud’s recommendation, the financial services provider decided to settle.
Bam’s annual report also records the following settlements:
* Once you have invested in a retirement annuity (RA), the fund’s trustees will not allow you access to your money until you are 55, citing the requirements of the Income Tax Act.
But one fund, referred to as N, had to relent when the FAIS Ombud intervened after a complainant told her that he gave his adviser an instruction that his early-withdrawal benefits paid as a lump sum from a provident fund should be invested in a way that the funds would remain available to him.
The adviser, however, placed the money in an RA fund. After the intervention of the ombud, the RA fund paid the lump sum (R666 735) back to the provident fund, which could then pay the benefit to the complainant.
* A company, referred to as D, reached a R49 189 settlement agreement with a complainant almost as soon as the case was raised with the company by the FAIS Ombud.
The ombud asked the company for its response to a complaint that one of its agents used the proceeds of an RA to purchase a living annuity before the product matured, incurring early termination penalties.
Without filing a response, the company sent a signed settlement agreement to the ombud.
* A life assurance company, referred to as N, paid R37 490 in settlement of a complaint that arose from the assurer refusing to pay out a dread disease benefit when the policyholder had a heart attack.
It rejected the claim because it says the policy did not cover people over the age of 60 – but it had sold the policy when the policyholder was already in his sixties.
* In a similar case, a life assurance company, referred to as Z, refused to pay a claim on the death of a 66-year-old woman because it excluded people over the age of 65 from death cover. But the policy was taken out when the woman was 66. Company Z paid a settlement of R15 000 after a R10 000 offer was rejected.
* In another dread disease case, a financial adviser replaced a dread disease policy with a life assurance policy that covered the policyholder only for death and disability.
The exclusion of dread disease was discovered when the policyholder fell ill with prostate cancer. Despite initially rejecting the complaint, the adviser paid R348 918 as a settlement.
* If a financial adviser does not provide you with details of all fees and charges paid on a financial product, you can complain to the FAIS Ombud.
A complainant, who initially invested R200 a month, rising over the years to R550 a month, discovered that her fund value was only R8 450 after she had contributed R17 000 in total.
When she complained to the RA company, she discovered “that fees and charges represented a huge percentage of the RA’s premiums”.
The complainant said she was not informed of the fees and the adviser could not provide proof of disclosure. On the recommendation of the ombud, the adviser paid R10 831 as a settlement amount equal to all fees and penalties paid on the RA.
For complaints about financial advice, call the office of the FAIS Ombud on 012 470 9080, fax to 012 348 3447, or email to firstname.lastname@example.org