A constant voice of ‘unfair treatment’

09 December 2020 Myra Knoesen

The Office of the Ombud for Financial Services Providers (FAIS Ombud) launched its Annual Report for the 2019/2020 Financial Year.

TCF and the Code of Conduct

Themed ‘We Hear You’, Ombud Adv Nonku Tshombe said, “we cannot help but hear a constant voice of ‘unfair treatment’ from consumers of financial services, highlighting the need for financial services providers to understand what it means to treat customers fairly. This is a concept that has its origins in the Code of Conduct for Financial Services Providers and is now interwoven into Treating Customers Fairly (TCF). In spite of this long history, this concept, and others, are still unclear having regard to the many instances where complainants come forward with genuine allegations of breaches of this regulatory approach.”

“Another voice that is heard by the Office of the FAIS Ombud relates to the suitability of products marketed to and taken up by consumers. This continues to rear its head in the retirement space where the mismatch between the needs of the consumer and the product recommended results in the tragic loss of retirement funding for the elderly who can no longer earn any income. The manner of marketing of products by financial services advisers is another area where the Ombud’s Office is hearing unhappy voices. This is particularly rife with reference to Endowment Policies,” added Tshombe.

Complaints resolved

During the 2019/2020 Financial Year, the Office of the FAIS Ombud received 8835 new complaints. This is lower than the 9323 complaints for the corresponding period during the 2018/2019 Financial Year. Whilst this represents a 5.23% reduction in the number of complaints received, 65% or 5750, of those complaints fell within the mandate of the Office. This represents an increase over the 5589 received during the 2018/2019 Financial Year that fell within the Office’s mandate. Therefore, the Office of the FAIS Ombud may have received fewer complaints overall, but more of those complaints represented matters that fell within its mandate.

Of the 8835 complaints received for the 2019/2020 Financial Year, a total of 3745 complaints were dismissed. A total of 2467 complaints were referred to alternative fora and 1290 complaints were settled in favour of the complainant. The number of complaints settled, 1290, was an increase over the 1209 complaints settled during the 2018/2019 Financial Year.

The number of complaints received during the 2019/2020 period that were carried over was 1333, lower than the 1660 complaints carried over during the 2018/2019 Financial Year. This means that a total of 7502 complaints were resolved within the financial year, which represented 84.91% of all complaints received. Further, 81.76% of all complaints received by the Office were resolved within three months, 91.18% within six months and 96.25% within nine months.

Overall, the total number of complaints resolved during the 2019/2020 financial year was 9252, which exceeded the number of complaints received.

The highlight once again was the number of complaints settled during 2019/2020 of 1850. This saw the Office of the FAIS Ombud attain a settlement ratio of 29.97%, slightly lower than the 30% achieved during the 2018/2019 Financial Year. The overall settlement value for the 2019/2020 Financial Year was R57 263 775 compared to the R66 668 302 that was provided to consumers during the 2018/2019 financial year. The reduction in the settlement value can be attributed to the reduction in the number of determinations issued, from 49 during the 2018/2019 Financial as only 13 determinations were issued during the 2019/2020 Financial Year as compared to the 49 determinations issued during the previous financial year. The positive aspect, however, is that the majority of the settlement value attained was from informal settlements achieved via conciliation processes between FSPs and consumers.

Other complaints resolved

During the 2019/2020 Financial Year a total of 159 applications for reconsideration were made to the Financial Services Tribunal and, of the 144 matters decided upon as at 31 March 2020, 132 of those applications were dismissed with only six referred back to the Office for further investigation. This reflects a favourable rate of agreement (95.65%) with the Tribunal.

In respect of complaints referred to other fora, a total of 2467 complaints were referred to other Ombud schemes, and whilst this was lower than the 2770 referred during the 2018/2019 Financial Year, it can once again be attributed to the fact that more complaints were received by the Office that fell within its mandate.

It is important to note that the figures detailed above do not include complaints that the Office received in respect of investments made into property syndications. The Office has for the first time during the 2019/2020 Financial Year included the resolution of property syndication complaints as a strategic outcome and committed to the systematic reduction of the backlog. The Office of the FAIS Ombud committed to reducing the 1300 remaining complaints by a minimum of 10% for the 2019/2020 Financial Year and, that at 31 March 2020 it had been able to reduce this number to 1114, a reduction of 14.31%.

The majority of complaints received making up 29.77% were from the long term insurance industry, and the short term insurance complaints were a close second at 27.72%. 

Some interesting trends

  • Endowment Policies - The Office of the FAIS Ombud noted that a majority of complaints with regards to endowment policies emanate from ‘causal effects’, at which point the clients are suddenly faced with surrender penalties and fees that they were not informed of. The main concern for the FAIS Ombud Office is that in most instances the endowment policy was not appropriate to the client’s needs and circumstances. The misleading component of endowment policies, according to the FAIS Ombud, stems from the manner in which these policies are sold; as investment solutions and savings products, without any emphasis on the fact that they are actually life assurance policies.
  • Single Needs – According to the FAIS Ombud, there is a failure to appreciate the difference between providing the prospective client with a full financial needs analysis and compliance with the general Code of Conduct. The default response to complaints received by FSPs when questioned, with regards to the appropriateness of the product recommended, would appear to be that as the transaction represented a single need such as saving for retirement, applying for life cover etc., and that there was no need to conduct a full financial needs analysis, the information collected, according to the Office, was not sufficient to provide appropriate advice and the client was advised as such.
  • Records of Advice - There is a growing trend towards standard generic advice records that not only provide generic statements, but these records also require the client to merely tick a box next to these generic statements. The concern surrounding these records of advice, the Office states, is that one cannot expect that the complainant would be able to confirm indeed what was disclosed with regards to fees and charges, for example what was comprehensive or indeed a correct representation that would have allowed the complainant to have made an informed decision.
  • Forex Investments - There continues to be an increase in forex investment complaints. Consumers of financial services have been lured by the attractive promises made of high returns and easy profits. These often turn out to be scams and clients lose all their funds.

Writer’s Thoughts

With TCF principles in mind, the Ombud stated that they cannot “help but hear the constant voice of unfair treatment… highlighting the need for financial services providers to understand what it means to treat customers fairly”. What about the voice of the FSP? There are many cases where the adviser did provide suitable advice, yet the complainant still approaches the Ombudsman because they are not satisfied with the outcome following the advice. There may be a view that the client is always blameless and the broker, the perpetrator of bad tricks. Do you believe the industry is dragging its feet when it comes to TCF? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].


Added by Quinten Knox, 09 Dec 2020
'Fairness' is not a concept that has its origins in the Code of Conduct for Financial Services Providers. It is an ancient value (concept) with its roots in Philosophy, not in law. In other words, to establish whether some act or omission is '(un)fair' is a Philosophical enquiry, not a legal interpretation. Just saying.
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Added by Ayanda, 09 Dec 2020
Quite naturally ombudsmen "cannot help but hear the constant voice of unfair treatment". That is the very reason they exist. Who would write to an ombudsman with anything other than a complaint about perceived unfair treatment ? Mr. Tshombe is surely acutely aware of this.
It is also deeply concerning that his report should be themed ‘We Hear You’. This implies that the "ombud" hears only the voice of the complainant. His role is to be an impartial arbiter, to hear both sides, to make decisions based on extant law, and not to descend into the arena. His is an Alternative Dispute Resolution (ADR) service - not an alternative law practice, nor is it a consumer advocacy service.
There is only one set of laws in SA - to which every citizen is subject, whether through the courts directly or through an ADR service.

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