Insurer debars multiple award winning adviser

Jonathan Faurie, FAnews Journalist

After a recent social tragedy, a top Government official confidently stated that South Africa has lost its moral compass. While many within the crowd enthusiastically agreed with this sentiment, there are more than a few people who would ask the question: have you only just arrived at this realisation?

And this does not just apply to the violent crimes, which receive major media attention. Since the birth of South Africa’s democracy 20 years ago, two of the unwelcome realities that South Africans have to live with are rampant fraud and corruption. While corruption from government officials is unacceptable there is not a great level of trust offered to Government by the public. But what happens when trust is broken in a relationship which is based solely on trust?

Committing an unthinkable crime

The relationship between a policyholder and their broker/adviser has always been seen as one of absolute trust. This even extended so far that at one point in time, a relationship which went beyond a professional relationship was not unheard of. Therefore, breaking this trust is one of the most unthinkable crimes in the world.

This was the case when Old Mutual took the decision to debar James Stern, who has a résumé which reads like a top honours student. In fact, Stern won Broker of the Year in 2008, 2009, 2010 and 2011. So it is inconceivable that Stern could be debarred because he did not comply with personal character qualities of honesty and integrity which are pointed out by the Financial Advisory and Intermediary Services Act of 2002.

The duties of a broker/adviser must be governed by a code of conduct which must be drafted in such a manner as to ensure that the clients being rendered financial services will be able to make informed decisions and that their reasonable financial needs regarding financial products, will be appropriately and suitably satisfied.

For these purposes, authorised financial services providers, and their representatives, are obliged by the provisions of the code to act honestly and fairly, and with due skill, care and diligence, in the interests of clients and the integrity of the financial services industry.

Appropriate action

While Old Mutual would not comment in detail on the events leading up to the debarment of Stern, Old Mutual Executive General Manager for Broker Distribution, Lee Nakan, points out that there were discrepancies.

"Stern’s debarment was related to some of his dealings with us while he was a representative of an independent brokerage and before he joined Old Mutual as a mandated agent in late 2012. We found discrepancies in his paperwork in so far as he duplicated customer signatures and altered postal addresses to mislead customers and misrepresent facts to Old Mutual,” says Nakan.

Old Mutual was contacted by three of Stern’s previous clients regarding his wrongful actions. The company then initiated an investigation followed by a hearing. His mandate agreement with Old Mutual was then terminated and the company debarred him. In addition, Old Mutual initiated a process to scrutinize the rest of the business submitted by Stern while acting as an Old Mutual representative.

How much damage has been done?

Giving misappropriated advice to clients for the benefit of personal gain is one thing, but duplicating customer signatures and altering postal addresses to mislead customers and misrepresent facts to Old Mutual, is a far greater misdeed.

Considering the information provided by Nakan, not only did Stern fail to comply with personal character qualities of honesty and integrity which is pointed out by the FAIS Act, his actions could also be constituted as fraud.

How does one recover from this? Nakan points out that the debarment is not permanent and that Stern can approach the Financial Services Board after a year in order to become reinstated. However, has too much damage been done? How can any member of the public trust Stern? How can a product provider now trust Stern? There is no doubt that Old Mutual was unaware of Stern’sactivities until they were pointed out by his previous clients. And Old Mutual acted swiftly and correctly in distancing themselves from him.

Editor’s Thoughts:
Trust is the basis of any good relationship. And while the bond of trust between a broker/adviser and the policyholder is not as sacred as that of the bond of trust with a priest, lawyer or doctor, experience has shown that the public is very unforgiving when it comes to breaking this bond. Perhaps the FSB and Old Mutual are only the start of Sterns punishment? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Note:
While Old Mutual did confirm that Stern won Broker Of The Year with them in 2008, he won his other Broker Of The Year titles at different companies.