Concerns arise as FAIS Ombud faces record number of complaints
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 [email protected].
Comments
A financial advisor named Nancy refers to older clients as being cognitively impaired. The blame for not understanding the terms of RA contracts is laid solely ( and ad nauseum) at the feet of the client.
Yes, urgaubly it is legal and true that it is incumbent upon the purchaser to read and know and understand the terms of any contract. Be that as it may, the insurance industry have had the benefit of being able to get away with very smart and unethical business practices twice for years.
I am one if those cognitively impairs individuals who stupidly agreed to the unfair and otherwise fraudukantvterms of RA policies. Let me explain.
I was raised with the belief that I was to save at least 10% of my income. So, when I went to work as a firefighter in 1986, I figured that my pension contribution was not quite enough. I started saving. Within the first month of employment we were ordered whilst on duty, to attend a presentation which was held by an OM ( and later Sanlam) Rep. as young 18 year olds we were given the usual sales pitch and frightened into signing up for an RA. These RA’s had maturity ages of 65 in general. I insisted on 55 but that is another lovely story of how OM now plans to still hang on to my money even after maturity!)
We truly believed that we were advised properly. So the years go by and one becomes smarter. Every year I receive an annual statement which boils my blood instantly. I look at the investment and at the actual investment value and the performance is middling at best.
I am stuck with it until,it matures as the Penalties for getting out is , as you all know, totally in favour of the Fund. Add to mix the very clever SARAF component who if course make the rules to suit Old Mutual.
But here is something else which perhaps the lady could care to explain. Since the day I signed a contract ( let us not forget that I am not even given a copy of the entire contract just the schedule. Try to get a look at the original and see what happens) I have NEVER been contacted , spoken to or received any financial advise from a FinacialmAdvisor. Yet I am laying monthly a levy for this advice. Two years ago when in SA, I again went in to the OM Office, corrected all the mistakes on my profile and again corrected the beneficiary nomination which was againyear after year incorrect. I again asked for an advisor to contact me and I am still waiting. Coukd you therefore claim that this is fair or just service?
It may be that if Natalie looked a little closer at the client history that she will find that we, collectively as a group were given extremely poor advice by agents who work on a commission basis therefore making most of unscrupulous. The law and the legal set up if the insurance industry was abhorrent in its slant towards the industry. Those matters are now being addressed. The number of complaints will increase as people ( yes, those pesky congnutively disabled old F(*&-s ) who are questioning the unethical practices of the insurance industry wrt RA’s and who are no longer willing to just accept the edicts of the Insurer or the Fund Manager.
There are fabulous Pension Funds in SA, namely the KZNJMPF. However, I will continue to demand my rights and my hard earned money and the on,y way to do it is via the complaint route.
Note that all my policies and premiums are and have been up to date and I have never had or will have a loan against them.
I am however lodging a complaint over
1. Pay out if full investment at maturity age 55
2. Refund of Advice Levies as no advice is or was received
3. Monthly levy if R60 which is being paid to a person ( or so the statement says) who has not been employed by OM since 2004.
Lastly, the amount of complaints are indeed indicative of a problem within the service industry. Perhaps it is time for the “advisors ‘ to seriously look at the nature of the complaints wrt RA’s and you will find that these issues mentioned above at at the root of most them.
Feel free to contact me at any time to discuss the matter. Report Abuse
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 Report Abuse
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. Report Abuse
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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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 Report Abuse