Moonstone: Good news from the FAIS Ombud

‘Tis indeed an ill wind that blows nobody any good, and in keeping with our undertaking in the previous Moonstone Monitor I did my best to find something positive in the latest determination by the FAIS Ombud. (Is that thunderous applause I hear in the background?)

I actually managed to find three examples.

1. “Investment performance related complaints have increased with the economic downturn and care must be taken to differentiate between something that is in essence ‘buyer’s remorse’ as opposed to non disclosure or inappropriate advice.”

In certain of the previous determinations by the Ombud I was relatively certain that the reason for the complaint lay far more with the client being dissatisfied with the policy conditions that led to his claim being rejected rather than with the advice he received.

Remember the case of the client who had a device fitted to measure certain aspects of her travelling habits as part of the “Good Citizen” clause and then complained that she was never told of the Clause? I still wonder how that measurement tool got into her car, and why the instrument was not tested to measure its accuracy against that of the client who recalled that she was driving at 120 KPH while the instrument clocked 140 KPH plus.

From the above it would now seem that if one is able to prove client satisfaction based on full disclosure, then buyer’s remorse could well be put forward as a reason for the complaint.

2. “The FAIS Act requires not only that the advice be appropriate but that disclosures ‘must be provided in plain language, avoid uncertainty or confusion and not be misleading.’ The client must understand what he is purchasing and the risks attendant thereon.”

In the background to the Raman versus Old Mutual case, the Ombud questions the judgment of an advisor who would place a client of 90 in a product with a proposed term of 6 to 9 years. While the risk profile analysis is merely an instrument, there is also that other one, approximately six inches wide and situated between the ears, which would say to the reasonable man that that particular product was possibly not the right one. As the Ombud put it: “Now whilst one wishes the complainant a long life, given that he was 90 at the time at the time of making the investment the 6 – 9 year time frame is in my view a bit too optimistic.”

An integral part of the “disclosures” referred to above is the marketing material one uses during the presentation. We are of the opinion that product houses who take the trouble to produce consumer–friendly material will have fewer adjustments to make when the new Consumer Protection Act comes into effect than those who still bank on the mushroom principle – feed them manure and keep them in the dark.

3. “There is certainly nothing wrong with efforts to obtain better performance and subject to the requirements of the FAIS Act being met, this Office will not intervene in instances where returns are not as expected.“

This statement can be applied in a wider context, in my opinion, and include replacing a short-term, healthcare or any other product that is more beneficial to the client. We are not propagating blanket churning here, though. In the same determination the Ombud berates the intermediary for not doing a proper comparison between the bank investment where the client’s funds were held, and the new fund’s risks which were not properly explained to the client.

I had a long chat to a reader yesterday about a client who has a pure endowment policy maturing next year. A rep from a big life office convinced the client to surrender it now, forfeiting R9 000 of the maturity value of R40 000, re-investing the R31 000 in a lump sum and taking out a new ten-year term pure endowment for R300 per month.

I asked for a copy of the advice record, but the client had nothing of the kind. The question from the reader to me was: Does this rep not have a supervisor who monitors this?