Financial adviser not responsible for client’s ill discipline
The appropriateness of financial advice can be voided by the conduct of the recipient. And in such cases it’s the recipient (and not the advice giver) who should be held to account. This is the conclusion reached by the Ombudsman for Financial Services Providers in the matter of Thabanchu Garrit Mashigo (the complainant) and Old Mutual Life Assurance Company SA (the respondent). The Ombudsman received a complaint on 27 June 2007 in which Mashigo alleged he was improperly advised regards the investment timeframe of a product sold to him.
Mashigo’s ‘journey’ began on the 9 September 2005, when he invested in a product known as the Investment Frontiers Capital Portfolio. He was advised by Ms T N Boikanyo, a financial adviser with Old Mutual at the time. When Mashigo approached Old Mutual to cancel the product (on 29 May 2007) he was told it was not possible to do so. The basis for his complaint was that he hadn’t been properly informed about the product – particularly the minimum investment duration – at the point of sale.
Evidence of thorough financial assessment
After an extensive internal investigation, Old Mutual advised the Ombudsman that “in their opinion, the strength of the signed documentation tipped the scales in favour of the financial advisor.” Based on Old Mutual’s submission, the Ombudsman concluded that enough effort had been made to assess the complainant’s financial position and requirements. It emerged that Mashigo refused the initial suggestion to purchase a voluntary annuity. He told Boikanyo that he had plans to generate income – including paying off the bond on a flat he owned (and collecting rental income) and starting a small business. He also told the adviser that his wife was “earning a steady income” and that he had the balance of R400 000 from a cashed-in provident fund to take care of short-term liquidity requirements.
It’s also clear the amount of the investment was discussed. There was some disagreement over the amount to be invested. Boikanyo wanted to invest R100 000 but the complainant preferred only R60 000. The Ombudsman notes: “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. She also alleges that Mashigo informed her that they (the Mashigo’s) had no other education policies in place.”
The investment product clearly explained
Boikanyo furthers attests that she delivered the contract to Mashigo at his place of residence. The contract was for the Investment Frontiers Capital Portfolio and the policy documents contain detailed information about the type of investment and its limitations:
- The investment is restricted to a minimum of 5 years
- The investor may only exercise two liquidity options (one Disinvestment and one Loan) during the restriction period – once these allowable liquidity options have been exercised, the investor may not withdraw any more of the capital before the five year restriction period expires
- The insurer is prohibited from making any promises to pay any policy benefits prior to the restriction period expiring.
During the investigation it became clear that Mashigo had already availed himself of the abovementioned liquidity options. On 27 July 2006 he requested (and received) a non-interest bearing loan of R20 000 from the policy. And on 16 October 2006, he requested (and received) a disinvestment equivalent to R15 000 into his bank account. “In both instances, the request was signed by Mashigo and proof of identification presented.”
No evidence of improper advice
“Has the FSP acted negligently in the rendering of the financial service?” asks the Ombudsman? He notes that Old Mutual provided a copy of its record of advice given to Mashigo, in which his goal is listed as “you are prepared to invest for at least five years and liquidity is not required.” In the absence of any further comment, we assume the Ombudsman found no fault with the company’s record of advice. “I am of the view that Mashigo was well aware of the limitations on the policy,” says the Ombudsman. This was demonstrated – in part – by the fact that Mashigo “exercised both earlier withdrawal options without any difficulty.” The Ombudsman concludes that after exhausting the options “he attempted to involve this Office in accessing the rest of the funds!” The complaint was thus dismissed.
Will this be the last the Ombudsman hears from Mashigo? We’d be interested to know what happens on 9 September 2010 when the complainant realises how much each of his earlier decisions cost in terms of fees, penalties and impairments to product performance. At that stage he might lodge a second complaint with the Ombudsman claiming that he wasn’t properly informed of the penalties and fees associated with the two so-called liquidity options he was able to exercise.
And we found a second concern tucked away in this determination. It took Old Mutual 60 days to respond to the complaint forwarded to them by the Ombudsman’s office on 21 August 2007. Although we’re sure this is within the timeframes allowed in the legislation – we’d welcome quicker response times from financial services product providers in the run-up to and during complaint resolution!
Editor’s thoughts:
We’re not familiar with the product discussed in this Ombudsman determination; but we know you cannot access funds in a long-term savings product without suffering some financial loss. How much financial loss will an investor suffer by taking a loan and early disinvestment from a product such as the Investment Frontiers Capital Product? Add your comments below, or send them to [email protected]
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