Needs analysis not a tick box exercise

The importance of an in-depth client financial needs analysis is once more highlighted in a FAIS Ombud investigation, ruling and settlement.

A financial needs analysis should not just be a tick box exercise; financial advisors should always do an in-depth analysis of the client’s circumstances and financial position before making any recommendation, even when clients move between providers as this case from the latest FAIS Newsletter shows.


The complainant is a business owner who had both commercial and personal lines policies, including cover for a caravan, but apparently not for its contents.

During September 2012, the complainant was approached by the respondent to review and take over his insurance business, and as a result the complainant provided him with all his policy schedules.

The result was that the complainant’s personal and commercial polices were consolidated. The caravan contents was however not included in the new cover.

During August 2014, the complainant submitted a claim after the theft of contents from his caravan. The claim was rejected on the basis that the contents of the caravan were excluded from cover in respect of the All Risk benefit.

In response the respondent claimed that the policy had simply been moved from the previous policy, and that the previous policy had not provided any cover in respect of the caravan contents. The respondent was therefore of the view that the fault was with the original advice that was provided by the complainant’s previous broker. The respondent claimed that he followed the complainant’s request to transfer the policy to the new insurer on the same basis.

However, the complainant was not satisfied with this explanation and approached the FAIS Ombud’s Office to recover losses in the amount of R40 000.

Investigation into the matter

In the first response by the respondent he remained of the view that he transferred the policy “as is” from the previous insurer to the new policy. He stated that this was done in accordance with the instructions of the complainant. He mentioned again that the fault, in his view, was with the previous broker for not having provided the complainant with cover in respect of the caravan’s contents.

The FAIS Ombud’s office however was of the view that upon taking over the complainant’s insurance portfolio, the respondent had the duty to conduct an analysis of the policy, as well as of the complainant’s needs and circumstances, to ensure that the policy remained appropriate.

The respondent, who was receiving commission from the policy facilitated for the complainant, could not simply transfer the policy without ensuring that it remained appropriate to the needs of the complainant.

After numerous interactions with the respondent the matter escalated to a formal investigation. The respondent then made an offer to settle the matter with the complainant.

An amount of R25 000 was paid in full and final settlement.

Editorial comment

The article appearing in the latest FAIS Newsletter does unfortunately not provide sufficient information on specific time frames, but it remains a concern that a claim arising in August 2014 apparently took four years to resolve. It could be that it was first lodged with the Short-term Ombud and then referred to the FAIS Ombud, but this does not detract from the fact that dispute resolution mechanisms exist to resolve complaints in a “…procedurally fair, informal, economical and expeditious manner.” By not adhering to these mandatory obligations, such institutions dilute the potential value afforded to it by legislation, and diminishes the trust of the public.

Click here to read our article “Client needs and circumstances” that further highlights the importance of taking a clients’ needs and circumstances into account

Click here to download the latest FAIS Newsletter.


Comments are closed.