Secondary

Ombud

FAIS Ombud – Harten Determination

This complaint was originally dismissed by the FAIS Ombud on the basis that there was no reasonable prospect of success. The client reverted to the Board of Appeal who ruled that the Ombud’s office should proceed with the matter in terms of section 27(4) and (5) of the FAIS Act.

Background

“On 25 September 2007, the parties met to discuss renewal of the policy. At that time, the cover in question was provided in the policy under “Stated Benefits” (SB). Respondent pointed out, at this meeting, that there were disadvantages to this, as this type of cover is subject to payments made by Workman’s Compensation, and accordingly payments, in the event of risk, may take a long time to process. Respondent recommended that the basis of the cover be changed to “Group Personal Accident” (GPA). The complainant accepted this advice and further instructed respondent to increase cover from R200 000 per annum to R300 000 as declared earnings. This meant that three times the declared earnings would result in cover of R900 000, representing an increase from R600 000 to R900 000.”

It is not clear from the determination whether the new policy also relied on a multiple of annual income, or consisted purely of a pre-determined sum assured. If the latter, it could be a pivotal point in the outcome of the complaint.

The respondent stated that the complainant was advised to increase cover, but he indicated that he did not “wish to pay any additional premium on this policy”. The respondent also pointed out that the complainant was an experienced FSP with 25 years of service in the short-term industry.

On 9 October 2007, the respondent sent a letter to the complainant, detailing the changes made to the policy. The stated benefit for death or permanent disability was R300 000. Having received this summary of insurance, the complainant made no request to change cover back to SB rather than GPA.

“On 3 August 2008, the complainant had a bicycle accident which rendered him a paraplegic. In May 2009 a neurologist certified that he was permanently disabled. Mutual & Federal accepted the complainant’s claim and paid an amount of R300 000.”

The complainant blamed the shortfall of R600 000 on the negligence of the respondent and accordingly looked to him for compensation of this amount.

The respondent stated that the complainant agreed to the reduced cover provided by the replacement benefit because “the premium for comparable levels of cover is approximately R900 per annum more for Group Personal Accident than for Stated Benefits. The respondent submits that in order to maintain an affordable premium, the complainant was satisfied that R300 000 cover under the GPA was adequate.

This argument was dismissed by the Ombud as highly improbable.

The Ombud also requested the respondent to provide his record of advice, but he admitted that he did not maintain one. He did claim though that the surrounding documentation shows that he did act in the interests of the complainant.

Client knowledge and experience

Section 3(1)(a)(iii) of the General Code of Conduct stipulates:

“When a provider renders a financial service, representations made and information provided to a client by the provider, must be adequate and appropriate in the circumstances of the particular financial service, taking into account the factually established or reasonably assumed level of knowledge of the client;” (my emphasis).

I find it strange therefore to read the following:

I first deal with the fact that complainant was an FSP. This is irrelevant and does not relieve respondent of his own duties as a licensed FSP. Nor does this fact relieve respondent from his obligations to comply with the Act and Code when providing financial advice. Respondent cannot rely on an assumption that the client is familiar with the product and then proceed to sell the product without satisfying himself that the client understands the product, that it is appropriate for his needs and is in a position to make an informed choice.

It is difficult to see how the client’s experience can be summarily be dismissed as “irrelevant”, given the complainant’s 25 years of experience in the short-term industry:

Original dismissal

It would also be interesting to know on what grounds the original complaint was rejected.

“The complaint was summarily dismissed on the basis that there was no reasonable prospect of success and both parties were informed“.

The determination then states:

“Complainant was dissatisfied with this and made representations urging this office to investigate the complaint and make a determination. On the 14th December 2012 and after reconsidering the matter this office informed the parties that “the Ombud is of the view that this matter does indeed warrant an investigation”.

“Complainant thereafter approached the Board of Appeal (the Board) and submitted that the matter be referred back to this office for determination.” (My emphasis)

It is not clear why the complainant would approach the Board of Appeal if the Ombud had already undertaken to investigate the matter.

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