Is this Treating Customers Fairly?

27 July 2017Myra Knoesen
Myra Knoesen, FAnews Journalist

Myra Knoesen, FAnews Journalist

Most people are familiar with the legal principle that ignorance of the law is no excuse. Could this be the case in this determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud)?

At all material times, the complainant, Mr Hylton Forge, dealt with Mr Roshan Singh, an employee of the respondent, Old Mutual Life Assurance Company South Africa Limited (OMLACSA) who rendered the financial service to the complainant. In this determination, reference to the respondent and respondents must be read as the same thing.

Seeking reversal of a transaction

Forge was a member of the South African Retirement Annuity Fund (SARAF) since 2000. During April 2016, and in anticipation of his retirement from the SARAF, Forge phoned the respondent’s call centre to enquire about his options. He was sent the necessary documentation to make his election. He discussed the matter with his financial adviser and was advised that since the fund value stood at R200 000, he could commute the entire amount. The financial adviser further advised him to personally call the respondent’s offices to submit the relevant documents.

During the same month, Forge visited the respondent’s branch in Durban to submit the documents. Mr Singh advised Forge in no uncertain terms that he would not be permitted to withdraw the full amount but one third of the fund value. Consequently, Forge would have to purchase a compulsory annuity with the remaining two thirds. As Singh did not prevaricate, Forge says he reluctantly agreed to the advice of withdrawing only one third (R70 000) and purchasing a compulsory annuity with the remaining two thirds of his money. This is despite the fact that he had intended to withdraw his entire fund value in order to resolve an urgent liquidity need he had at the time.

As it stood at the time, the law allowed Forge to withdraw his full fund value, subject to payment of tax. He later discovered that the law had been misrepresented to him and immediately lodged a complaint with the respondents, seeking a reversal of the whole transaction and payment of what was originally due to him, minus legally permissible deductions.

Forge mentioned the issue to Singh who was adamant that the respondent had failed to appropriately advise Forge given the prevailing income tax laws at the time.

At the outset, it must be noted that the respondent’s advice, according to the FAIS Ombud, was incorrect in that, since 1 March 2016, the laws relating to the commutation of lump sums had changed such that it is permissible for members of retirement funds to commute the full fund value where the value is not more than R247 500. Following the advice, Forge was paid the amount of R48 000. According to Forge, tax in the amount of R17 000 was paid to SARS and the remainder of R5 000 to the respondent.

Following the discussion with Singh, Forge, on 1 June 2016, wrote to a Mr Pierre Schoon, the respondent’s area manager and expressed unhappiness with the advice provided by the respondent. For a full month, Forge says he was not given any straight answers, with the respondent merely advising that the matter was under investigation.

On 5 July, Forge called Schoon who conceded that the respondent had made a mistake but that the problem was with SARS who were unwilling to assist the respondents. According to Forge, Schoon advised him that the respondent at that stage had eight such cases where mistakes had been made by its employees in advising the respondent’s customers.

Respondent’s three defences

For their part, the respondent raised three defences. According to the FAIS Ombud the respondents firstly blamed the South African Revenue Services (SARS) for refusing to assist the respondent with the reversal of the transaction; two, it claimed Forge failed to acquaint himself with the legal consequences of his election, and finally, the respondent claimed that, were it to pay Forge the full commutation amount, Forge would be unjustly enriched.

In an email dated 9 September 2016, the respondent, through its internal arbitrator, wrote to Forge and advised that SARS had refused to assist them in reversing the transaction. The respondents offered him an amount of R10 000 to which Forge rejected.

In its response to the Office on 4 April 2017, the respondent accepted that it had failed Forge. The respondent repeated that it was unable to reverse the transaction. It stated that it offered Forge R10 000 which he rejected and sought guidance from the Office on how to deal with the matter.

Determining the matter

The FAIS Ombud points out that the respondent failed to justify these defences with reference to the facts and the law.

According to the FAIS Ombud, it is important to note that despite the respondent’s concession that it had made the mistake in advising the complainant, including its inability to resolve the problem, the respondent cannot provide evidence that it referred its client to the Office despite the Office’s rules that state if providers are unable to resolve a dispute clients must be referred to the FAIS Ombud.

Forge wrote, “I find it hard to believe that SARS won’t sanction release of my funds- what are their reasons? If you say this happened on other occasions I ask the questions – how many times? Reading between the lines this has obviously happened far too often for their liking and they are now putting their foot down to the detriment of individuals such as myself. Old Mutual are clearly not prepared to fight SARS on behalf of their customer or take the knock and pay what is due to me, so I am the person that has to suffer for your staff member’s incompetence. And all along OM have omitted their error but are not prepared to pay what I am due.”

Forge accuses the respondent of treating him poorly. He claims that the respondents, instead of resolving his complaint, raised multifarious excuses and ignored his concerns. In determining the matter, the FAIS Ombud states the respondent treated Forge unfairly. The respondents were ordered to take the necessary steps to reverse the transaction, recalculate the tax and pay Forge what is due to him.

Editor’s Thoughts:
It is true what they say that ‘ignorance of the law is no excuse’. But can ignorance under certain limited circumstances provide a viable defense to a criminal charge and who is to blame in this case? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Myra, 31 Jul 2017
Hi Kammy,

I agree that this goes against TCF principles but OM, in the determination, accepted that it had failed Forge. It repeated that it was unable to reverse the transaction. It stated that it offered Forge R10 000 which he rejected and sought guidance from the Office on how to deal with the matter.
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Added by Kammy, 29 Jul 2017
I agree with Johan's comments. This goes against TCF. Furthermore, OM is responsible to place the client in the position they would have been in had the error not been made. What SARS does or does not do should not affect the client. Any losses to be incurred should be footed by OM.
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Added by Myra, 27 Jul 2017
Hi Paul

Thank you for the comment.

I agree clients should always use a financial adviser.
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Added by Myra, 27 Jul 2017
Hi John,

Thank you for your comment.

I believe there is always three sides to the story: the respondents, the complainants and the truth.

It is true that ignorance of the law is no excuse. The treatment of the customer in this case was poor however we must also remember the respondent points out that SARS refused to assist the respondent too.

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Added by Paul, 27 Jul 2017
Always use a financial adviser!
The only call center of any use has not been invented yet.
It probably never will be either.

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Added by John, 27 Jul 2017
An instruction signed by client was submitted by Old Mutual to SARS. There is no grounds to ask SARS to reverse their actions, and in any event, why should the tax payer pick up the costs of numerous incorrect submissions. That said, the old Mutual is fully liable to place the complainant in the position he would have been but for their bad advice. Their desperate defenses reflect very poorly on Old Mutual and their behaviour is totally at variance to the values that they once so proudly held. This is but another reason why OM is hemorrhaging clients
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