Are financial services companies genuinely improving their customer service in line with the Financial Services Board’s Treating Customers Fairly (TCF) regime, or are they merely paying lip service to TCF and continuing in their consumer-unfriendly old ways? A recent ombud determination describing the “manifestly unfair” treatment of a customer by Old Mutual points to the latter being true.
A retiree was given – and acted on – wrong information from an Old Mutual employee about how much he could withdraw from his retirement annuity (RA).
The law had only just changed, so the error is forgivable. What is less forgivable is what happened next, according to the determination: instead of going out of its way to make amends, Old Mutual accused the retiree of being ignorant of the law. It told him it could not remedy the situation without the tax authorities’ approval, which, apparently, it could not obtain.
To top it all, the determination says, Old Mutual told the ombud that if the transaction was reversed, the retiree would be “unjustly enriched”.
The determination by Noluntu Bam, the Ombud for Financial Services Providers, says that Mr F belonged to the South African Retirement Annuity Fund (Saraf), administered by Old Mutual.
In April last year, in anticipation of his retirement from the fund, Mr F discussed the various options open to him with his financial adviser, who told him that, because the fund value stood at R220 000, Mr F could take the entire amount in cash, subject to tax.
When you retire, you can withdraw only a third of your savings from an RA as a lump sum, unless the fund value is below a certain amount, in which case you can take the full amount. Until recently, this figure was R75 000. However, it changed on March 1 last year, when the government amended the tax laws to bring the treatment of provident funds into line with that of pension funds and RAs. The fund value below which you can take the whole amount as a lump sum was increased to R247 500.
When Mr F went to Old Mutual’s Musgrave branch in Durban to withdraw his savings, Roshan Singh, a financial adviser employed by Old Mutual who was obviously not aware of the changes, told him “in no uncertain terms” that he could withdraw only one-third of his savings in cash; the rest would have to be annuitised in the form of a pension.
Mr F reluctantly agreed, taking R70 000, which, after deductions and tax, left him with only R48 000.
On speaking again to his own adviser, Mr F realised that Singh had got it wrong. He wrote to Old Mutual detailing the problem and asking it to reverse the transaction and pay him his full amount.
Old Mutual acknowledged that its representative had failed to advise Mr F adequately, but told him that the South African Revenue Service (SARS) was unwilling to assist in reversing the transaction.
According to Bam’s ruling, Mr F was told that there had been an obligation on him, as a member of the fund, to have ensured that he was aware of the consequences flowing from his decision, and that ignorance of the law was not an excuse for making the incorrect decision. It also emerged that Old Mutual had eight such cases where its advisers had incorrectly informed clients.
At that point, Mr F laid a complaint with Bam’s office.
The ombud referred the complaint to Old Mutual, inviting it to resolve the matter. Old Mutual replied, again stating that it could not reverse the decision without SARS’s approval and arguing that, if were it to pay the full value as a lump sum, Mr F would be “unjustly enriched”.
Old Mutual said it had offered Mr F an amount of R10 000, which he had rejected. Old Mutual ended off by asking the ombud’s office for guidance in the matter.
In making her determination, Bam said there was no dispute that Old Mutual, in wrongly advising Mr F, had contravened the provisions of the code of conduct for financial services providers. Old Mutual had also conceded that it had misrepresented the law when advising Mr F.
Bam argued that a reasonable person would not of his or her own accord appreciate the complicated relationship between tax and retirement savings, and the “attendant delicate detail”. It was therefore reasonable for Mr F to have acted on the advice given to him.
The ombud also took umbrage with Old Mutual’s response that it was unable to reverse the transaction as a result of SARS, and that the company had sought her counsel on how best to resolve the matter, saying this request was “disingenuous”.
She said Old Mutual had shown no interest in resolving the complaint, having provided no records to demonstrate the steps it had taken, and that its conduct made “a mockery of the Financial Advisory and Intermediary Services Act and the Treating Customers Fairly principles”.
Bam noted that the Income Tax Act caters for bona fide mistakes, in which case a tax directive to SARS could be reversed.
Regarding Old Mutual’s claim that Mr F would be unjustifiably enriched by being paid out the full amount, the ombud held that this was not supported by any fact or law, and that Mr F sought only that which belonged to him.
Bam upheld the complaint and ordered Old Mutual to take the steps necessary to reverse the transaction, recalculate the tax and pay Mr F what was due to him, less the permissible deductions.
OLD MUTUAL RESPONDS
Personal Finance invited Old Mutual to comment on this article. Its chief marketing officer, Vuyo Lee, provided the following response:
“Old Mutual takes the fair treatment of customers seriously. In cases where the advice was incorrect or unsuitable, Old Mutual will make every effort to make good with the customer.
“We remain committed to working with the customer to agree a fair and reasonable outcome.
“In this particular instance, the South African Revenue Service (SARS) has refused our requests to cancel the tax directive that was issued, as the error was not on their side. However, our team will re-engage SARS to reverse the transaction in order to provide Mr F with his full annuity.
“We regret that we have not yet found a way of resolving the matter and are mindful of the discomfort this may be causing the customer.
“This matter is receiving our urgent attention for resolution.”