FAIS Ombud dismissed complaint against Old Mutual

The FAIS Ombud has dismissed a complaint against Old Mutual Life Assurance Company which he found had not been negligent in rendering a financial; service.

Charles Pillai (pictured), the Ombud for Financial Services Providers, had received a complaint from Thabanchu Mashigo against Old Mutual relating to an investment he made on 9 September 2005 in a product called “Investment Frontiers Capital Portfolio”.

It was sold to him on the strength of advice given by a Ms. T N Boikanyo, a financial adviser at Old Mutual.

Mashigo claimed he was not furnished with sufficient information regarding the minimum period of investment and was under the impression that he could access his funds at any time.

Mashigo said he approached Old Mutual on 29 May 2007 to request cancellation of the policy as he urgently required access to the funds “to take care of his family”. He alleged he was informed that Old Mutual could not help him.

He subsequently approached the Office of the FAIS Ombud for assistance in cancelling his policy so that he could have access to his funds.

When asked to respond, Old Mutual conducted an internal investigation. In their opinion the strength of the signed documentation tipped the scales in favour of the financial advisor.

Old Mutual’s investigation revealed the following:

1. When Boikanyo initially visited Mashigo, her recommendation was that he should purchase a voluntary annuity that would provide him a regular income for the rest of his life. Mashigo allegedly refused and informed Boikanyo that he had plans to generate income. According to Boikanyo, Mashigo’s plans were that he would pay off the bond on a flat he owned and use it to generate rental income. He also planned to start pay phone businesses and some other small business;

2. At the time, Mashigo indicated that his wife was earning a steady income and that they would be relying on it. Furthermore, Mashigo had cashed in his provident fund and had received approximately R400 000 from it;

3. A few weeks after the initial meeting Mrs. Mashigo contacted Boikanyo requesting that the investment be finalised as Mashigo had felt it very important that it be in place for the education of his two minor children;

4. At this point, it appears that Boikanyo advised Mashigo to invest an amount of R100 000. However, Mashigo only wanted to invest R60 000;

5. Boikanyo alleges that she explained the product to Mashigo including the limitations on the amount of withdrawals available on the product. Boikanyo further alleges that Mashigo made it clear that he had no intention of making any withdrawals as the investment was meant for the future education of his children.

6. Ms Boikanyo alleges that she then personally hand delivered the investment contract to Mashigo at his home and explained the contract to him.

According to the policy documents, the Investment Frontiers Capital Portfolio has certain limitations on it. The investment is restricted to a minimum of five years; the investor may only exercise two liquidity options - one disinvestment and one loan - during the restriction period; and the insurer is prohibited from making any promises to pay any policy benefits prior to the restriction period expiring.

The Ombud said it appeared from the documents before him that Mashigo did in fact exercise both liquidity options listed above - neither of which was initially disclosed to the Office of the FAIS Ombud by him.

On 27 July 2006, Mashigo requested a non-interest bearing loan of R20000 from the policy. This was transferred into his Nedbank account. Just under three months later, on 16 October 2006, he requested a disinvestment equivalent to R15000 into his bank account. In both instances, the request was signed by Mashigo and proof of identification presented.

In his determination, the Ombud found that Boikanyo’s advice was “‘…adequate and appropriate in the circumstances of the particular financial service, taking into account the factually established or reasonably assumed level of knowledge of her client”.

The Ombud also found that Boikanyo clearly appeared to have gathered the requisite information on Mashigo’s financial situation from Mashigo himself. More importantly, she had established that Mashigo, despite his advanced age, was not short of liquidity in the sense that he had access to a large amount of cash – cash which he planned to turn into an income-generating investment.

“I am of the view that Mashigo was well aware of the limitations on the policy. He in fact exercised both earlier withdrawal options without any difficulty.

“It would appear that having exhausted these options, he attempted to involve this Office in accessing the rest of the funds,” the Ombud said, in dismissing the complaint.

Click here to read the full determination (PDF file 30kb)