The hard truth behind FAIS determinations

As part of the media, we receive a large portion of the determinations which are dealt with by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud).

According to the Ombuds 2013 Annual Report, the watchdog had to deal with 33 determinations during the year. What are we as an industry doing to reduce this? Why are there so many determinations being handed down by the Ombud where the adviser is at fault? These were some of the topics that were discussed at the recent Altrisk Power Round Table event.

The current scourge of the industry

The way in which advisers deal with the Ombud is critical. The watchdog has an open door policy which allows a disgruntled client to approach it with their grievance against an adviser. Those who have been through an Ombud investigation will say that it is a traumatic and harrowing experience.

Anton Swanepoel, Co-Founder of Cutting Edge Business Solutions, pointed out that it takes between 10 and 15 years to build a profitable and sustainable business. During this time, the adviser needs to cultivate a good business relationship with hundreds of clients, successfully executing thousands of transactions. However, it only takes one complaint to the Ombud to put the adviser’s reputation at risk.

“One of the key focus areas of the industry should be record keeping. This however, is where the industry is letting itself down. The Ombud currently gives the industry a record keeping trust level of three out of ten. We cannot blame the Ombud for ruling against us if we do not supply good records to plead our case,” said Swanepoel.

He added that the Ombud can only work on the quality of record keeping that is handed to it. Cases are won based on facts, and it is safe to say that poor record keeping is at the heart of the majority of current determinations.

“Every client that an insurer takes on is a potential risk, and we underestimate that risk,” said Swanepoel.

Swanepoel is also disillusioned with the record keeping in the industry questioning the relevance of the current Record of Advice that advisers conduct with their clients.

Make a note and count your blessings

If there are any papers on your desk, pick them up now and scrutinise them. If it is information relating to an interaction with a client, file it. It could help you later.

Susan Gonnermann, Head of Claims at Altrisk, mentions that there is definitely a growing trend of clients going to the Ombud when claims do not go their way.

“If a life claim is rejected, a client will go to the Long-Term Ombudsman. If they do not get the desired results, product providers get a call a few weeks later from the FAIS Ombud informing them of an impending investigation into the adviser. We have had two cases like this towards the end of August which happened within a week of each other,” said Gonnermann.

Advisers need to keep records of all communication. Altrisk recently had a case where the company took on a life policy and the gentleman in the policy died of a disease which fell within the policy exclusions. Altrisk rejected the claim, and the deceased’s wife approached the Long-Term Ombud.

“The Long-Term Ombud ruled that we were within our right to reject the claim because of the exclusion, and two weeks later, we got a call from the FAIS Ombud informing us about an investigation into the adviser. A few weeks before the incident there was e-mail correspondence between the adviser and the client who passed away, where the adviser pointed out the exclusion in the policy. The deceased still wanted the cover because no other company would accept him as a client. If we did not send this email correspondence to the Ombud, what would the results have been?” asked Gonnermann.

Be permanently on your guard

Gustav Fichardt, a Partner at Webber Wentzel, said that the client is not always in the right, therefore you have to prove that the client is wrong to the Ombud. You must approach the case with the sense that the client is always right, however you need to go out and have better evidence than the client to prove that they are the guilty party.

There is definitely a sense that this is an issue in the industry. One of the audience members at the event raised a concern that when it comes to a FAIS determination in the industry the client is innocent until proven guilty, the product provider is innocent until proven guilty, but the adviser is guilty until proven innocent.

Swanepoel points out that one cannot assume that any determination is final. The Ombud can make mistakes.

“The adviser needs to receive fair treatment. The adviser can appeal a determination handed down on him/her provided that he/she did not play an instrumental role in the loss suffered by the client. This occurs during cases of fraud and misappropriation of funds on the part of product providers,” said Swanepoel.

When a determination is being investigated, the adviser is given six weeks to send a response to the Ombud on the allegations made by the client. It is surprising how many advisers do not send any response to the Ombud. While this may unconditionally point to guilt on the part of the adviser, the Ombud still has a duty to investigate the allegations on a broader basis. However, Swanepoel has little sympathy for advisers who do not submit a response to the Ombud, and are then found guilty. “These advisers should be debarred from the industry and not be allowed back in,” concluded Swanepoel.

Editor’s Thoughts:
The fact that the Ombud is giving the industry such a low confidence rating when it comes to record keeping is alarming. While the determinations handed down by the Ombud are not a reflection on the industry, it is concerning that record keeping is being questioned. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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