We would all like to believe that, since the introduction of the FAIS Act in 2004, things have changed for the better, and that clients are less exposed to advice which has only the interests of the adviser at heart. While this holds true for the majority of advisers, there are still instances where the good work done by many are tarnished by others.
Take for instance the following example from the latest FAIS Ombud newsletter:
Mrs LV (the complainant), alleged that her financial adviser with whom she had built up a trusting, long standing relationship, advised her to move some of her funds to an endowment policy, allegedly for tax purposes. During 2011 she transferred R 460 000, in 2012 a further R 506 000, and in 2013 an additional R 556 600, all of which represented single premium lump sum investments for the respective years.
She subsequently learnt that the policies stated that the premiums were meant to be paid annually over a period of 10 years. She would also have to contribute an amount of R 5 808 612 between the years 2014 and 2020. What’s more, there was a 10% premium linked to each investment, all of which the complainant alleged was not discussed with her and not within her means.
Mrs LV terminated her investment with the respondent and met severe early termination penalties, which were “clawed back” from her investments. Her efforts to resolve the matter with the respondent were unsuccessful. The complainant states that she had never contemplated investing annual recurring premiums and that she had understood that these were single lump sum premiums.
Mrs LV approached the FAIS Ombud’s Office for assistance. In response, the product provider was adamant that Mrs LV was, at any given point in time, always placed in a position to make an informed decision. The respondent claimed that he had, at all times, acted in good faith, with due skill, care and diligence and in the best interests of the client. Moreover, that he had, in his dealings, carried out the client’s instructions.
The Ombud found the respondent’s level of compliance with the Code wanting. There was no clear evidence that the adviser had satisfied himself that the complainant had the means to meet the onerous premiums. It was an inescapable conclusion that the adviser had not applied his mind and/or had acted in complete disregard of the client’s interests. Against mounting pressure to substantiate the claims of compliance with the Code on the part of the provider, the provider opted to resolve the matter without prejudice and refunded all confiscatory penalties with interest. The offer was accepted by the complainant.
Should this adviser, based on the above, be allowed to practice? In my view, submitting single premiums as recurring premium business is tantamount to fraud, and the 10% annual premium increase abhorrent. Equally, moving investments to 10 year endowments, ostensibly for tax purposes, while failing to point out the cost and restrictive clauses of this investment medium, really has the interest of only one party in mind, and that is not the client.
One also has to ask what the product provider did, on receipt of the new business, and subsequently, when the truth came to light. Was an investigation conducted of other business submitted to uncover similar practices?