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Insurer debars multiple award winning adviser

What happens when intermediaries break the trust of policyholders and the companies they work for? 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 adviser has always been seen as one of absolute trust. 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.

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 as he duplicated customers’ 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.

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. 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.

How much damage had 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.

Readers weigh in

This newsletter generated quite a response among our audience. Leagle said that hats must be taken off to Old Mutual for having the courage to sack such a money-spinner. "Now how about the other brokers that do the same things and even worse?"

Arthur Argent added to this saying that what Stern did hurts not only his customers who have confided in him, but the industry in which he has worked. "For one to win Broker of the year for four years in a row, you have to be a special person."

Lucille added that she would never trust this guy again. "If I were to judge whether he should be able to work in the finance world again, I would say ‘once a fraud always a fraud’. This I have seen many times in my life in the financial services industry."

Johan Liebenberg says that this is proof of the ongoing debate from insurers. How does one judge an award winning adviser? “For insurers, award winning advisers means money spinning advisers not honest guys who provide average business. Old Mutual should take part of the blame because they judge award winning advisers by commission generated and lapse percentage, a very wrong way to try and squeeze more business out of an adviser.”

AZ makes a valid point by pointing out that if someone was involved in this type of unethical practices, it will not stop if he/she is suspended from the roll for only a specific time period. “It is well known that these people can still continue working in the industry, using other FSP’s licenses. It is no wonder that directors of illegal schemes, where investors lost money, will go on working in the industry, just in another form of business. Rotten apples should be permanently deleted from the FSP's roll.”