Tough in the trenches
We recently watched a television interview conducted with FAIS Ombud Charles Pillai for Summit TV. Pillai answered a number of questions which put the role of the financial services provider (and particularly the broker and intermediary) under the spotlight. FAnews Online felt it appropriate to examine some of Pillai’s comments.
The role of the FAIS Ombud
The first question in the interview was for Pillai to provide an outline of the role the FAIS Ombud had to play. He said: “Our function is to resolve complaints by clients against financial services providers. That’s typically the brokers that sell financial products, be it long term products or short term products or investment or shares even.”
“So our jurisdiction is quite wide – it covers advice, which is advice at the point of sale and intermediary services, which is not advice but putting a policy or an investment in place. That’s broadly our jurisdiction. It kicked in on 30 September 2004. So we can deal with complaints by clients of financial services providers in respect of a financial service that is rendered on or after 30 September 2004.”
This statement fairly presents the situation as most players in the industry understand it. But close attention to the words in the first part of Pillai’s answer show why brokers and financial intermediaries are under so much pressure today. Legislation has been drawn up in such a way that the transgressors in the financial services industry are “typically the brokers that sell financial products.” In other words, the buck stops at the broker. And many of our readers feel the financial product providers are totally absolved of any wrongdoing.
Watching you – and only you
There is little doubt that financial services providers were able to operate without appropriate regulation for some time. The result is the FAIS Act, among others, to ensure that advice given to consumers of financial products is appropriate and of the required standard.
Pillai points out that the Act was a long time coming: “So finally after a long time brokers come into some kind of regulatory net in terms of which their conduct is being watched, not just by the FSB but also by the FAIS Ombud in respect of complaints that clients may level against them.”
What is expected from brokers? “They have to render appropriate advice. That’s the bottom line as far as the FAIS Act is concerned,” said Pillai. Consumer complaints are judged on the basis of whether the advice given by the financial intermediary (or broker) was appropriate. For this reason it is essential brokers are able to provide documentary proof of the financial needs analysis conducted with the consumer. But will this evidence be enough to absolve the broker from all wrongdoing. If we consider Pillai’s further comments – apparently not.
A massive burden for the insurance ‘sales force’
Pillai listed the items a broker should cover to ensure appropriate advice. “The broker has to make proper disclosures upfront as to what the costs of the policy is, what the premium are, what their commission is, what their relationship is with the product supplier, who they are, what their license requirements are all these are requirements in terms of the FAIS act that says up front you must know your broker and your broker has to make these disclosures.
“In relation to the financial product itself, the broker must make sure that his client understands what the terms and conditions of the policy are. For example policies have fine print and brokers need to know what that fine print is and explain it appropriately to the client taking into account the level of knowledge of the client. And that means not making misleading or confusing statements to the client so that the brokers duty as a professional is to plain language that document as far as possible for the client to understand and that’s typically the kind of service you would get if you go to the doctor. He’ll explain to you what your condition is and what the treatment is. There would be a lot of jargon behind it which the doctor would only understand – and that’s what is expected of your broker – that’s the kind of analogy I can give you.”
And that’s it. All a broker has to do is ensure that he fully communicates all the possible stumbling blocks attached to an often difficult to understand insurance policy. The onus and responsibility for reading and understanding the policy document has shifted away from the consumer and onto the broker.
Severe penalties for getting it wrong
Getting it wrong could financially ruin you. In the event advice was not appropriate or disclosure incomplete “The broker then could very well be liable for the loss or potential loss that the client has suffered,” says Pillai. He provides an example that will probably send shivers down the average broker’s spine:
“Let’s assume for example that it was not properly explained to the client that in order to enjoy cover on a motor vehicle he had to make sure that it has what the industry calls a VESA approved gear lock of a certain quality and type and to produce a certificate at the time of a claim.”
“And if the broker has not explained that to the client, then if the client suffers a loss because he did not have such a device fitted on his motor vehicle, the broker could very well be responsible for indemnifying that client, which could potentially be the full value of the loss. And if it’s a R100 000 or R200 000 vehicle (our jurisdiction is up to R800 000) the broker could very well be liable for that loss.”
Editor's thoughts:
It is clear the onus for disclosure and policy interpretation now lies squarely on the broker. Getting things wrong could have serious consequences. Have you been at the wrong end of a complaint to the FAIS Ombud? Let us know what happened. Send your comments to [email protected]
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