Concerns arise as FAIS Ombud faces record number of complaints

23 November 2017Jonathan Faurie
Noluntu Bam, FAIS Ombud

Noluntu Bam, FAIS Ombud

Is the financial services industry improving its performance when it comes to offering clients appropriate advice and selling them appropriate products?

This is no doubt the question that every product provider and intermediary ask themselves when they sit down and assess their systems and processes. 

And while these parties are required to put the client at the centre of everything that they do – through the principles set out by Treating Customers Fairly – there are more than a few rumours going around in the industry that suggest that there are some parties who are struggling to adhere to TCF principles. 

Growing problem

Along with the Retail Distribution Review (RDR), TCF was implemented in the hope that these two documents would add gravitas to the Financial Advisory and Intermediary Services (FAIS) Act. 

Therefore, the best indication of whether the industry is improving its act is to look at the complaints going in and out of the office of the FAIS Ombud. And if we judge this by the 2016/17 FAIS Ombud’s Annual Report, we see that there is a lot of work still to be done.

According to the 2016/17 report, the Ombud received 10 846 new complaints during the period under review. This is the first year that this occurred. In addition, the Ombud received 5 630 justiciable complaints during the same period. 

Of the 10 846 new complaints that the Ombud received, 3 794 complaints (over 34%) were dismissed, 4 639 complaints (over 42%) were referred, and 592 complaints (over 5%) were settled. In addition, 1 821 complaints (over 16%) were carried over into the 2017/18 year. 

While it is recognised that the industry may not be performing badly if we look at the amount of complaints to the Ombud when compared to the amount of policies that are sold in the industry where there are no complaints, any increase is alarming. 

An increase of 955 complaints in a year is surely a cause for concern. 

An issue of legality

While there is an increase in the number of complaints received by the Ombud, it must be acknowledged that a large portion of these complaints are made erroneously and are dismissed by the Ombud before further action is sought. 

Speaking at the launch of the Report, Noluntu Bam, FAIS Ombud, pointed out that complaints were dismissed after applying the legal rigour that the circumstances of each case warranted. 

“To minimise the chance of dismissing a complaint in error, decisions to dismiss must be approved by senior managers and must be accompanied by submission of extensive supporting documentation. Similarly, if complainants are not satisfied with the decision to dismiss their complaint, they have the right to lodge an informal appeal for a review by a more senior person, who is likely to be an Assistant Ombud or Team Resolution Manager,” said Bam. 

Alarming trends

The Ombud obviously has a bird’s eye view over all the industries within the financial services industry and has noticed some alarming trends when it comes to the disability, critical illness and severe illness industry. 

“We have over the years pointed to the inadequate and therefore inappropriate advice that is fuelling the sale of products to serve clients in the event of disability or critical illness or severe illness. We have also identified the practice of over-selling these products. Overselling often leads to complaints, as most people have no appreciation of how disability, critical and or severe illness benefits work,” said Bam. 

She added that it also does not help that the circumstances in which benefits will either be provided or not be provided are always couched in complex legalese and medical terms. 

“Financial Service Providers (FSPs) who sell such products take the easy route of pointing to the convenience of, for example, a small savings in premiums to encourage switching from an existing product to the one being offered. Another ruse is to refer to the disease by name only, without stating the point in the progression of the disease at which the benefit becomes applicable,” said Bam. 

Retirement woes

Another area of concern for the Ombud is the retirement planning industry. The decisions made during retirement planning are long lasting or permanent in nature. 

“For this reason, inappropriate advice can have disastrous effects on a client who is no longer economically active and is unable to make up any losses sustained. This situation is aggravated by the fact that South Africans do not adequately provide for their retirement and many still rely solely on the benefits provided by their pension and / or provident funds. Even then, FSPs do not always adequately advise clients about the consequences and implications of withdrawing funds from their retirement benefits during their working life,” said Bam. 

She added that in addition to this, FSPs sometimes fail to advise clients on the use of these funds – whether it be to reduce debt, create an emergency fund, or simply how to invest the funds to supplement the income from the compulsory annuity. 

“It is becoming more common for FSPs to admit to shortcomings in the advice they provide. However, they then claim that it is not possible to reverse the transaction. The impossibility of a reversal stems from the FSP having no power to place the client in the position he would have been in prior to the advice provided. Clients are told that reversing the transaction is impossible because of SARS’ unwillingness to cancel the tax directive. This explanation undermines the FAIS Act and TCF principles,” said Bam. 

Editor’s Thoughts:
Are the number of complaints to the Ombud reflective of the fact that the industry is approaching crisis mode when it comes to fit and proper conduct? While it will be impossible to get to a situation where there are no complaints to the Ombud, we need to get to a stage where the amount of complaints to the Ombud decreases. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Thapelo, 08 Jan 2018
The product providers must review their products and benefit definitions to clearly states the point disease progression at which the benefit becomes applicable.
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Added by Lizelle, 24 Nov 2017
When are we as an industry (especially media partners who make a living from this industry) going to help uplift the image of the insurance sector? The FAIS Ombud is an important part of the value chain of insurance, no business anywhere in the world can get it right all of the time. Customers need to know that the FAIS Ombud is there to ensure they are treated fairly when we as business get it wrong. Let's stop misleading the public by quoting statistics which are one sided!
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Added by Paul Kristiansen, 24 Nov 2017
fake news again
Unfortunately journo's to must make a living so the headlines are mostly disingenious I m sick & tired of these continual aspersions against IFA,s - first start at the the front door of your sponsors many of which have designed a poor product ( unfortunately Advisors sell them ) with the online Insurers the biggest problem
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Added by Arnold, 24 Nov 2017
And again the annual ra ra about how bad an industry is without doing the real figures. Complaints are rising! Of course they would it we sell more and more policies. It is like saying there are more accidents without reporting how many additional cars on the road.

Lets say advisors are so lazy that only 20% of the estimated 100 000 of them advise clients at all. The rest 80 000 of them do absolutely nothing on client advice. Now each one of the woking ones see one client per working day and each client interaction touche on only tree pieces of advice given or that should have been given.

Then 14,4million pieces of advice that has the risk of having been incorrect are given in SA in a year. Only 5 630 FAIS OMBUD Justiciable complaints! This includes a category only named (Non FAIS) of 1 827.

Get a life people we are doing charmingly well in TCF.

On the above scenario the percentage of complaints is 0.039% of pieces of advice.

Maybe advisors should share with other industries on how to run a well focused client outcome industry.

Municipalities, Eskom, Police, government hospital, licensing departments please do not hesitate to ask.

PS: In my business if you do not interact with at least 10 clients a day and give on average at least 10 pieces of advice to each every working day of the year you might as well buy a farewell cake.
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Added by Nancy, 23 Nov 2017
Most advisors are doing their very best for clients - are the clients doing their part too. I have a client who now has to increase his taxable income because he reduced his non-taxable capital to buy gold coins. This was not in the original plan. Now he is worried and says I have not given this much thought. In the last three years I saved him R180 000 in tax. I have spent 1.5 days (I get a % per annum) without charging for my time - it is included in the %. Will he feel aggrieved enough to complain to the ombud? Who knows. As clients get older too (I work with retirees mostly) their cognitive ability declines and their anxiety increases. How do we protect ourselves from that?
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Added by Gavin Came, 23 Nov 2017
I am always amazed at the hyperbole around the FAIS, pensions and life insurer Ombud reports.

Lets be kind and assume that all 10,000 complaints are correctly directed to the FAIS Ombud, which they are not. Lets further assume that all of them are negative to the industry, which they are not. Lets further assume that they all relate to products issued by traditional life assurers, again which they definitely do not. In the 12 months to June 2017 the traditional life industry issued 7,686,029 NEW policies. So bear with me on one last assumption and lets assume that ALL the complaints related only to the latest 12 months business. The ratio of complaints to new business in the life industry only would be 0.0013010619846 or stated differently 0.13%. Putting again differently 99.87% of policyholders did not complain to the FAIS OMBUD.

This is hardly "the best indication of whether the industry is improving". It would seem to me that the industry is professional and almost perfect.

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Added by Peter, 23 Nov 2017
Legislation has never ever in the history of time ever achieved the intent for which it was written. It will always create the very problem that it is designed to reduce or do away with. Part of the problem is the legislator never understands the environment that it tries to legislate. All the concerns raised by the office of the FAIS Ombud stems from the fact that the person buying the product does not understand what is being bought. In most if not all of these cases these people will never accept the responsibility of knowing the product that they buy into. There is no way in which any service provider can explain any product to the fullest understanding. At most he can highlight the main issues and then advise the client what material to read in order to understand the product. Just think about the amount of years that was spend trying to teach students maths at school. Then think about the amount of people that can actually apply the math that they have been taught. A huge percentage is incapable of doing maths. In the same way a huge amount of people is incapable of being explained what they have bought into. In answer to your question if you want to stop the complaints to the FAIS Ombuds office we must standardise all products and / or create a night school where people can go and learn about the products they buy into and make the assured/insured responsible for their financial decisions. I am willing to bet that less than 5% will actually go through the trouble of going through an effort to understand their product purchased. A longer-term view would probable be to start teaching children at school about the various problems that they might face later in life.
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Added by Kenny, 23 Nov 2017
Maybe clients are just becoming more aware that they can complain and will do so whenever they feel aggrieved, even if that is not really the case. evident by the high number of dismissed complaints. Maybe we are simply making more work for the sake of work?
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Added by Deborah George, 23 Nov 2017
it would be nice to split the number of complaints by the various industries within the very large Financial Services sector
Life, Medical Aid, Retirement, short term(could also be split between classes)- that way we could focus specifically where we need to relook at products, selling to the client etc. A broad brush stroke to the industry to improve is not effective
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Added by Mark Alcock, 23 Nov 2017
Overselling often leads to complaints, as most people have no appreciation of how disability, critical and or severe illness benefits work,” said Bam. If overselling is a common complaint , then an industry guideline with maximum benefits should be suggested .Indeed, which the LOA used to prescribe @ 2 thirds benefit for loss of income,which should also be overstated on all the FNA,ROA,quotes and policy documents requiring signatures confirming awareness of max benefits signed by both client and adviser,too.
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