We are not a LOTTO office

FAIS ombud Charles Pillai says that there is a dire need to have a strong broker community working in South Africa, and more importantly there is a need for a professional body of brokers.

On the other hand consumers must take some responsibility for their investment decisions, if the broker has done all that is required.

He was speaking at the presentation of his organisation's annual report, and on hand to hear his thoughts and comments were leading lights from the FSB, the media, and other ombuds- notably Helm van Zyl and the fpi.

He says that their office's work has only just begun- there is much more that needs to be done. He reminded everyone that people shouldn't loose sight of why FAIS came about- it was due to R600m Masterbond scam.

He asked whether the country has effective guidelines in place to make sure that the guilty people can be prosecuted?

There are 33 Leaderguard cases concerning the scams valued at R300m. More recently they provided a determination against Global Investments, where individuals invested R90m, all of which was siphoned off- via several casinos. It turns out that Global Investments wasn't even a deposit taking organization, or a registered collective investment scheme.

The problem is that the money is gone, regardless of the determination made, and investors have suffered.

In terms of Leaderguard, Pillai says that the 'nebulous recovery unit' are resorting to personal attacks to deflect attention, from the real issues.

"We rule against the brokers, but what happens to the real culprits- they get off scot-free, because the legal system takes so long to hear the case. Do we think that justice is done, when those same dubious characters comes back and continues business as usual.

"Do we have willing courts and regulators to eliminate the fraud? He warned that the country is in danger of being red-lined internationally, and investor confidence in the markets must be maintained.

Having said that the National Prosecuting Agency is starting to skill up and employ experts in fields that will make prosecution become a priority.

Turning back to annual report, Pillai reported that his organization had issued 11 determinations in the past financial year, 310 resolved complaints and R6.5m in terms of refunded commissions and reversed transactions.

Where there is a determination, this is generally followed by a number of settlements, the number of which cannot be determined.

Its also been a busy year- their first and full year of operations, when at inception the office had handled 22 matters, it climbed to 60 in 2004, to 544 after September 2004 and between April and March 2006, 3806 matters had been handled in one way or another.

According to Pillai there are already 2048 cases at this stage of the current financial year.

"We have no time to do anything else than to deal with complaints. In the time since inception they have come of age," says Pillai.

On the question of the issues and determinations - there were several principles that were ruled on and came to the fore.

Freedom of choice
There are certain systemic issues that he highlighted. Freedom of choice being one of them, and a determination concerning home owners insurance cover. Banks were incorrectly interpreting the Short Term Act in terms of insurance cover, and freedom of choice also suffered.

Working together they reported the practice to the competition commission and the minister of trade and industry, and as a result the new national credit bill has been modified to take this determination and practice into account.

Financial needs analysis
An individual financial needs analysis was the next issue highlighted. Opaqueness of commissions and fees were the issue, and yet the banks settled several of these cases, although Pillai wasn't able to put a number to these settlements.

Record of advice
The lack of a clear record of advice was another issue highlighted, which shows that there was a clear drive to sell a product. In one particular case the bank refused to take responsibility for an employee, based on the fact that she was serving her notice period.

Due skill, care and diligence
He hoped that the level of skill improves in the broker community, as this was a clear issue, which appears in many determinations.

Negligence
In one determination concerning a medical scheme, there is a duty on the broker to ensure that the disclosures underwritten are clear and provide all the information.

Direct marketing
Quick turnaround times are a feature of this type of selling, and his sense is that there should be amendments to the FAIS act which he has suggested, although he is unclear as to whether these would be accepted.

The other issue that there is no understanding of the level of sophistication of the caller.

On the question of direct marketing Pillai indicated that there a ruling on this selling practice could be expected in the near future.

Consumers
These determinations aren't always in favour of the consumer, however. Consumers must take responsibility says Pillai. The broker is not the client's keeper, and there are several High Court cases that make this point. If the broker has done everything then the client has to take responsibility.

There must be proper record keeping, and advice, and a financial needs analysis.

Editors thoughts:
*As always the ombud is forthright. The fact that he calls the legislative process into question is a valid one.