Ombud report shows financial advice complaint trends in the industry

The FAIS Ombud's 2023/24 Annual Report presents critical findings on the performance of Financial Services Providers (FSPs) and the resolution of complaints filed by consumers.

Advocate John Simpson, the FAIS Ombud, emphasised key trends in the sector, addressing both successes and ongoing challenges.

Overview of complaints

During the 2023/24 period, the FAIS Ombud received a total of 10 574 complaints, a slight decrease from 10 970 complaints recorded in the previous year, 2022/23. Of these complaints, 4501 were classified as FAIS-related complaints, which means they pertained specifically to the Financial Advisory and Intermediary Services (FAIS) Act. The remaining complaints involved non-FAIS matters or issues not directly falling within the Ombud's oveview.

Types of complaints

The nature of complaints varied widely. Common issues raised included:

• Advice-related complaints: Consumers felt they had received poor financial advice that did not suit their needs, leading to financial losses.
• Unauthorised policy: There were numerous instances of consumers reporting that they had never agreed or consented to the policy, particularly within the funeral policy industry.

Non-payment of claims: Consumers who felt that the rejection of their claim was unjustified. Especially within the funeral policy services industry.  Statistics breakdown

Here is a summary of the statistics outlined in the report:

 In terms of resolution, the Ombud successfully closed a significant number of cases. 5 046 complaints were resolved 95% of the 76 applications for reconsideration lodged with the Financial Services Tribunal were dismissed, confirming the Ombud’s approach and decisions on the cases.

Key findings and insights

Advocate Simpson, speaking during the report's presentation, stressed that while the Ombud had made strides in addressing complaints, there was still a concerning trend of consumers not reading their policy documents and actively ensuring that the products advised and sold meet their requirements.’ financial literacy remains a pressing issue, with many consumers not fully understanding the complexities of the products they engage with.

Furthermore, Simpson called for continued industry accountability. He highlighted the importance of financial service providers adhering to their fiduciary duties and ensuring that their representatives are adequately trained and equipped to offer consumers the best possible advice. Advisors must ensure that they provide their clients with the best possible service and advice and not merely serve as a conduit for policy documents.

Some key case studies

The report also featured key case studies from the short-term insurance sector, illustrating common issues within the industry. In one case, a motor vehicle insurance policyholder had their claim rejected due to the failure to install a tracking device. Upon investigation, the Ombud found that the broker had failed to properly inform the client about the requirement, leading to the denial of the claim. The Ombud ruled in favour of the client, directing the broker to pay the claim.

Another relevant case involved homeowner’s insurance, where a claim for theft due to a robbery was declined due to the minimum-security requirements not being in place. The Ombud found that the broker did not properly advise the policyholder regarding a change in risk address and the security requirements. The Ombud found that the broker did not comply with his responsibilities and complied with the recommendation that he settle the claim.

These examples, according to the Ombud, underscore the necessity that brokers pay careful attention to their clients and provide ongoing advice and information. 

Industry response and recommendations

In response to the findings, the Ombud recommends that financial service providers continue investing in BREAK consumer education to mitigate the gap in understanding between the products offered and their actual benefits to consumers. The Ombud also encourages FSPs to continually pay attention to their complaint handling procedures, aiming for quick and transparent resolutions.

Simpson urged the industry to adopt a proactive approach, noting that many complaints could have been avoided through better ongoing communication and appropriate risk assessment.

Looking ahead: challenges and opportunities

Looking forward, the FAIS Ombud's office expects the volume of complaints to possibly grow as financial products become more complex and consumers become more aware of their rights. Simpson expressed optimism that the financial services industry would rise to the challenge.

Writer’s Thoughts

The FAIS Ombud’s 2023/24 Annual Report reflects a financial services sector that faces significant challenges in certain areas. While significant progress has been made in resolving complaints, the grievances highlight opportunities for enhancing service delivery and consumer education... Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.