Revisiting the FAIS Act

Due to the hustle and bustle of doing business, earning an income and chasing targetsnot a lot of time is spend on improving the practice, our processes and our knowledge.

Focus on the following aspects will improve compliance and your practice in general.

 

Do you record the verbal and written communications between you and your client, especially the communication regarding collection of information, goals of the client, discussions around strategies and suggestions (advice) for the client?

 

Remember that the General Code of Conduct for Authorised Financial Services Providers and Representatives (the code) are very clear about this.

 

In section 3(2) the code states that a provider must have appropriate procedures and systems in place to record communications with clients, store it safe from destruction, and the ability of retrieval when necessary.

 

So, since the adviser does not have any documentation or records proving his side of things, many FAIS Ombud determinations are decided in favour of the client. If not in place, maybe a resolution can be to ensure your procedures and systems are actually in place, to record client communications.

You should also have a consistent process where collection, analysis and synthesis of the client’s information and product suggestions are aligned with the client’s mandate (goals and objectives).

It is alarming to see how many FAIS Ombud determinations refer to inconsistencies in this regard.

 

An example is where the client advice record indicates the client has a medium risk tolerance, but in the risk profile questionnaire the client’s risk tolerance was recorded as low to moderate risk.

 

In the same determination an investment in property syndications was suggested ignoring things like the client’s age and the investment term. The product prospectus even had warnings that the shares on offer were unlisted, and should be considered as a "risk capital investment”, and that investors should note that there is a substantial risk in that the investor may not be able to sell his shares should he wish to do so in future.

 

All these relevant factors were ignored, which let to inconsistent advice.

For the second resolution, ensure that your advice process of recording the information, keeping the client’s goals in mind and making product recommendations, are all aligned.

 

Lastly, how about improving your knowledge and understanding of the content and clauses of the different financial product contracts you are licensed to advice on?

As an example of the possible implications of a lack of knowledge, let’s look at a FAIS Ombud determination dealing with short term insurance.

Briefly, the facts were that a fire destroyed a building with its content, which included equipment and a tractor for golf course maintenance. The provider insured the tractor (used for mowing the golf course lawns) under building content. The insurer honoured the claim for the building and equipment, however, the tractor claim was rejected.

Reason being that the tractor was not insured in terms of the cover provided due to the fact that it was a self-propelled vehicle, and therefore should have been insured under the vehicle section of the policy.

The condition of average was also applied to the claim, because it was never disclosed that the equipment was to be on an agreed valued basis. In fact, the proposal form completed by the provider indicated, "Sum insured must represent the full replacement value of the contents of the residence including VAT.”

Make sure to take active steps in 2013 to implement some easy To-Do New Year’s resolutions for your business, as it will certainly improve your practice, advice processes and compliance.