Another milestone in the age of financial services consumerism
“On the whole, consumers place enormous trust in the advice they get from [their financial advisers], unaware of the probable conflict of interests… Even where the trust has manifestly been misplaced, the individual concerned may not realise that they hav
There is no better place to uncover the disputes and scandals that rocked the financial services landscape over the past year than in the FAIS Ombud 2011/12 Annual Report, presented 26 October 2012. The organisation received 8821 complaints during the period. Most of these cases (4180) were referred to other dispute resolution mechanisms while 2386 were dismissed out of hand, leaving 3547 judiciable cases. Some R44.112 million was awarded to financial services consumers by way of settlements or determinations against financial services providers, up from R34.784 million last year. A total of 1116 complaints were settled and 25 determinations made.
Financial consumers must do their part
Contrary to popular belief insurance rather than investment complaints dominate proceedings. In the 2011/12 year the FAIS Ombud received 1752 (19.86%) investment complaints versus 2573 (29.17%) long-term insurance and 2354 (25.69%) short-term insurance complaints. The next biggest complaint categories include other financial products 1560 (17.69%) followed by retirement 401 (4.55%) and medical 181 (2.05%). “I am pleased to see that members of the public are indeed making use of the Office of the FAIS Ombud, as evidenced by the increased number of complaints received and resolved annually,” notes Finance Minister Pravin Gordhan. “However, such increase may also indicate that some companies in the financial advisory industry are failing to resolve issues with their clients, forcing clients to seek recourse through the Ombud process”.
Gordhan felt that recent cases of rogue investment advice point to the dangers still facing people seeking financial advice, especially the vulnerable in society. Not unexpectedly the minister hopes to address these shortcomings through additional regulation. He observed that the shift towards a “Twin Peaks” system of regulating the financial sector will result in a stronger market conduct regulator who will take tougher action against poor market conduct practices! But he also acknowledged that financial services consumers should take greater responsibility for their investment decisions. “We also need to focus our efforts on consumer education and better financial literacy,” he said. “An informed consumer is better able to distinguish good advice from bad”.
Nine questions your clients should ask...
Abel Sithole, Chairperson of the Financial Services Board, observed that the demand for the Office’s services had increased steadily since its establishment in 2003 – an indication that members of the public have confidence in the forum. He offered nine practical steps for members of the public to apply when considering investment opportunities (assuming they choose to transact without professional financial advice):
1. Do not rush into signing papers on the strength of persuasive talk where the papers indicate something else.
2. Even where the promises are recorded on paper, do not rush to sign.
3. Speak to the regulators to find out whether they know about the entity you are going to put your money into.
4. Speak to as many people as you can before parting with your money.
5. Do not rely on the references you have been given by the person inviting you to invest. Do your own homework. If you need help, call regulators and obtain as much information as you can on the company you are invited to invest in.
6. Ask the person to leave you with the investment papers and forms. Do not allow anyone to put pressure on you. If they do not want to leave the papers with you, that must be an indication that they do not want you to know much about what they are selling to you. Not a good sign.
7. Take your time – do not be pressured by talk that you will miss out on a ‘once in lifetime’ opportunity. If it means you must make hasty decisions you may regret later then rather let such ‘once in a lifetime’ opportunities pass you by.
8. Call or write to newspapers that deal with matters of finance, they may be able to obtain answers quicker than you can.
9. Trust your instincts. If it sounds too good to be true, it probably is.
Two trends to look out for
Noluntu Bam, FAIS Ombud, singled out two trends in the latest report. The first deals with property syndication investments and the second with selling or taking over a short-term insurance book. On property syndication, she notes: “The past financial year confirmed fears of a rise in the numbers of consumers who put their hard earned savings into black holes, on the basis of lamentably bad advice wrapped in fancy presentations and accompanied by marketing material devoid of any fact which could enable consumers to make informed decisions”. (It is this strong opinion that advisers fear has tainted some of the recent syndication-related complaints).
As for short-term books, Bam observed: “Providers have from time immemorial been taking over or selling short-term books to one another. Where such a move is in the clients’ interests and the necessary disclosures have been made, there will hardly be a complaint. The problem comes about when clients allege violations of the FAIS Act emanating from this practice”.
Editor’s thoughts: “The objective of the FAIS Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all circumstances”. The Office specifically entertains and rules on complaints that relate to financial advice that is not fit and proper... Were you surprised that insurance rather than investment complaints topped the FAIS Ombud 2011/12 complaints received list? Please add your comments below, or send them to [email protected]
