FAIS Ombud orders broker to refund costs that were not properly disclosed

In a move likely to send a strong message to brokers to properly disclose all costs and charges timeously, the FAIS Ombud has disallowed a broker commission that was not properly disclosed to his client.

Elizabeth Penzhorn a teacher from Cape Town complained to Charles Pillai (pictured right), the Ombud for Financial Services Providers, that a broker, Seppo Ranta of Point Broker Services, had not fully disclosed costs that were eventually discovered in two investments contracts that he had recommended to her.

She only discovered the full costs when she received her contracts from the product supplier, Momentum.

She alleged that when she had asked the broker what the costs involved in investment would be, he had assured her that it would be “nominal”.

However, when she received her contracts she discovered that he had charged the full commission of five percent on the one contract and 1.5 percent on another contract.

She threatened to cancel the contracts when she discovered these costs. However, the broker urged her not to do so.

On the question of the costs, the broker insisted that he had disclosed costs by reference to certain Fund Facts sheets which he attached to the response that was furnished to the Ombud.

In analysing the various documents provided, the FAIS Ombud observed that the documents that the broker relied upon to justify his assertion that he disclosed costs did not, in fact, disclose any costs that would have been levied in respect of the investments in the products concerned.

The Ombud questioned why the broker had not provided the quotations which clearly reflected costs in support of his assertion that he did disclose costs.

The Ombud also questioned why the broker had only obtained the complainant’s signature on the last page of the application form and had not obtained her signature at the relevant portion of the application form relating to how costs were calculated.

On the basis of the probabilities, the Ombud found that the broker would have indicated that costs would be nominal. He found:

• The Respondent had not pertinently refuted the allegation;
• There was no evidence that the Respondent disclosed the costs that were eventually charged, and importantly’
• That Respondent chose to charge the full commission of five percent on the Investo Linked Investment and what can be considered a nominal charge of 1,5% on the Investo Designer Annuity

The Ombud then examined the position at common law regarding what the position would be if the price was not agreed in a contract.

He found that “contracts are not void for vagueness simply because a price has not been agreed”. Using this principle he found that the broker would have agreed to a nominal fee.

He accordingly ordered the broker to refund R22 344.00 which had been charged on one of the investment contracts.