FAIS Ombud report highlights ongoing problem of bad advice
WORDS ON WEALTH:
The release each December of the FAIS Ombud’s annual report provides a good opportunity to remind you of the recourse open to you if you have been on the receiving end of bad financial advice.
Under the Financial Advice and Intermediary Services (FAIS) Act, financial services providers, which include financial advisers and insurance brokers, are obliged to adhere to a code of conduct when dealing with you, the customer. The ombud, officially the Ombud for Financial Services Providers, has the power to act on complaints against advisers by consumers, and, where the complaint is found to be valid, reach settlements with advisers or issue determinations against them on compensation up to R800 000.
Losing money in an investment is not sufficient grounds for a valid complaint. People lose money in investments every day. What does constitute grounds for complaint is the suitability of the product you were advised to invest in.
The FAIS code of conduct requires a financial adviser to assess you thoroughly before advocating a particular product, taking into account your financial position, age, personal circumstances and risk profile. What’s more, the adviser must keep a written record of his or her interactions with you and the advice given. If advisers don’t keep such records, there is no proof on their side that the products they chose were carefully considered and based on thorough assessments.
Each year sees a raft of cases of often elderly people and pensioners having lost large portions of their life’s savings in some high-risk investment or other. For many years the ombud dealt with the aftermath of the implosion of the property syndication scheme industry, notoriously Sharemax in particular, through which investors invested in a number of property developments that collapsed after the 2008 financial crisis.
While a huge backlog of property syndication cases is slowly being whittled down (1114 cases are still to be resolved), there will always be new high-risk investment schemes to ensnare unsuspecting investors, despite regulators’ best efforts to control them.
The FAIS Ombud’s Annual report for its financial year April 1 2019 to March 31 2020 was released last week. During the reporting period, in November last year, Advocate Nonku Tshombe took over as the ombud from Naresh Tulsie.
The report notes that R57 263 775 was clawed back for consumers in settlements and determinations, which is somewhat lower than the R66 668 302 clawed back in the 2018/2019 financial year. This was largely due to a decrease in the number of determinations issued. However, the report says the bulk of this money came out of “informal settlements that resulted from conciliation processes facilitated by the Office of the FAIS Ombud between financial services providers and consumers.
“This is an encouraging turn which this Office hopes will persist, as it demonstrates improved relations between financial services providers and their customers,” the report says.
During the reporting year the ombud received a total of 8 835 new complaints, of which 5 750 fell within the ombud’s mandate. This exceeds the 5 589 complaints within its mandate received during the preceding financial year. The report notes that 81.76% of complaints were resolved within three months, 91.18% within six months, and 96.25%% within nine months of receipt.
A total of 1850 complaints were settled or resolved in favour of the complainant, which is on par with the 1871 complaints settled/resolved during the 2018/2019 financial year.
The majority of complaints (29.77%) involved the selling of long-term insurance policies. However, short-term insurance complaints were a close second, at 27.72%. Complaints about investment and retirement products comprised 21.24% of total complaints.
The insurance cases dealt with by FAIS Ombud are where a broker or call-centre agent has not adequately assessed the client’s requirements for cover or not fully briefed the client on the policy’s Ts and Cs. Cases are decided in the client's favour if the broker cannot provide proof of compliance with the code of conduct, in the form of a record of advice.
In 2017 Mr C insured his wife and children under a funeral policy. In November 2019, Mr C’s son died. His claim was rejected on the grounds that his son had been over the age of 26 years, which was the maximum age for a child to be covered under the policy.
Mr C complained to the ombud, saying he had not been told about this condition and had also not been provided with any notice to say that when his son reached 26 years he would no longer be covered.
The broker initially maintained that Mr C was aware of the clause. However, the broker was unable to provide the ombud with any documentation showing that it had complied with the provisions of the code and that the terms and conditions of the policy had been fully explained to Mr C. In a settlement, the broker agreed to pay out the claim in the amount of R5 000.