Charles Pillai, the Ombud for Financial Service Providers, highlighted cases in which financial advisers failed their clients in his annual report.
Case 1: Adviser not disclosing commissions
The complainants, Mr and Mrs M, are pensioners who banked with one of the major banks.
They consulted their bank's financial adviser on how best to invest their money and pointed out that they needed to draw income from the investment.
During their discussions, the financial adviser mentioned a return of some 13 percent a year but the official papers contained no information concerning the interest rate.
The adviser did not mention commission during the discussions. Investment returns were to be credited to the investment account quarterly.
After the first quarter, Mrs M went to the bank to withdraw some funds and was shocked to discover that not only had no interest had been credited to the investment account, but that the capital had diminished by about R20 000.
On making inquiries, she learnt that the deduction was for commission. It was only after the the ombud's office intervened that the bank settled the matter and repaid Mr and Mrs M the R20 000.
Lesson learned:
As a consumer, you are entitled to know what costs are involved in an investment before the contract for such an investment is concluded.
The financial adviser also has an obligation to ensure that you understand the investment and that it is appropriate to your needs.
In short, you must be able to make an informed decision. The financial adviser is obliged to disclose the commission on the investment and how it is to be paid.
Case 2: Ignoring a client's instructions
Mr D specifically asked his financial adviser to arrange a retirement annuity (RA) which would allow him to make contributions as and when he wanted to, so as to avoid paying for penalties that life companies apply when you stop or reduce your contributions to the RA.
When Mr D contacted his adviser to tell him that he would be reducing his RA contributions because he wanted to settle some debts, he discovered that an amount of more than R17 600 had been confiscated as a result of the variation in his contributions.
Eventually Mr D referred the complaint to the Ombud for Financial Service Providers.
The matter was resolved with the life company concerned paying back the entire loss suffered by Mr D and agreeing to put in place a retirement annuity that will allow him to vary his contributions.
Lesson learned:
The General Code of Conduct promulgated under the the Financial Advisory and Intermediary Services (FAIS) Act requires that your financial adviser must take into account your needs and your experience of financial products, the adviser must consider the financial products that are likely to suit your needs and must recommend the product that is appropriate to the your needs.
This must all happen before the investment is made or the product is bought.
If an adviser fails to do so, he or she will be contravening the FAIS Act.
Case 3: Misselling
Mr Q approached one of the major banks to ask how best to invest his spare cash of R2 600 in a fixed deposit.
He was directed to the bank 's representative, a financial adviser. After completing some documents, Mr Q was told that documents confirming the investment would be sent to his address.
When he received his letter from the bank, Mr Q was not amused to find that what he had been sold was in fact a life policy with an annual recurring premium of R2 600.
He complained to the bank but was told that there was not much that could be done as the policy had already been put in place and to cancel it would incur penalties.
The bank compensated Mr Q for the full amount of R2 600 when the Ombud intervened.
Lesson learned:
Financial advisers are required by law to disclose details of the product or investment they are selling, whether or not funds can be accessed from an investment and what, if any, are the implications for accessing your money early from the investment.
Case 4: Adding insurance without client's knowledge
Mr H had applied for a loan at one of the major banks. The loan was granted on the security of a first mortgage over Mr H's property.
When he started repaying the bond, Mr H noticed that his repayments were slightly higher than expected.
He was told that the increase was due to a life assurance policy he had been sold.
He also noticed that the bond amount was R20 000 higher than that for which he applied.
The ombud's office referred the matter to the bank and it was settled by cancelling the life policy and refunding the premiums to the client.
Lesson learned:
If a bank gives you a loan on the security of a mortgage bond, it will be violating the FAIS Act if it takes out a life policy for you and adds the life policy premium and commission on to the loan amount without discussing this with you .
Case 5: Failing to implement client instruction
Mr P was a member of his former employer's pension fund.
Part of the benefits available to Mr P and his wife was membership of a medical scheme.
Mr P was asked by his employer to attend a meeting with other pensioners where they were advised about the employer 's intention to change from the existing medical scheme to another one.
The pensioners were also advised that the employer would no longer contribute to the current scheme if they opted to stay with it.
Mr P, along with several others, opted to transfer to the new scheme.
The financial adviser attending to the transfer completed an application for Mr P who was told that his medical scheme card would be posted to him as soon as it was ready.
Mr P had still not received the medical scheme card four months later when Mrs P took ill and had to be seen by a doctor.
Mr P immediately telephoned the financial adviser who informed him that he was still waiting for the forms, and that he was waiting to hear from the new medical aid scheme.
Mr P faxed the form to the financial adviser 's offices.
Shortly after meeting with the doctor, Mrs P's condition deteriorated. She needed to be hospitalised.
Before admitting her, the hospital called for an authorisation number from the scheme. The scheme replied that it had no record of Mr or Mrs P on its system.
Mr P again called the financial adviser's office and was told that the office was still waiting to hear from the scheme.
Mr P eventually had to pay R14 000 for the hospital expenses and other medical fees out his pocket.
The complaint was referred to the ombud's office.
The financial adviser tried to convince the ombud that the scheme had prejudiced the client, Mr P.
However,the ombud found that it was the adviser who had been negligent as he had failed to process the application on time and had also failed to forward information to the scheme to enable it to record the couple as members.
The financial adviser eventually compensated the complainant in full.
Lesson learned:
When a complainant has suffered, or will potentially suffer financial prejudice, as a result of the negligent rendering of a financial service, the FAIS Ombud may order the financial adviser responsible to make good that loss.
Reasons to complain
You can complain to Charles Pillai, the Ombud for Financial Services Providers, on the following grounds:
- That your financial adviser has contravened or failed to comply with the Financial Advisory and Intermediary Services (FAIS) Act,
- That your financial adviser rendered the financial service, willfully or negligently, that causes or is likely to cause you to suffer financial prejudice.
- That in rendering a financial service to you, your financial adviser treated you unfairly.