Proposal I: Conduct Standards for referrals and lead generation
Certain specifically identified forms of referrals and leads will be included in the regulatory framework as a form of financial intermediation, and will be subject to specific conduct standards. Conduct standards in this regard may relate to:
- Disclosure of and limitations on the nature and source of remuneration or other financial interest derived by referral or lead provider.
- Management and disclosure of any potential conflict of interest between the provider of the referral and the customers or other parties concerned.
- Measures to ensure customer consent and protection of customer information in appropriate circumstances.
- The responsibility of product suppliers or intermediaries in relation to their use of referral or lead generation services.
In cases where the referral or lead provision does not meet the relevant criteria to be regarded as financial intermediation, depending on the structure of the arrangement, it may nevertheless be subject to relevant standards for marketing and advertising activities, or for the outsourcing of activities by a product supplier or intermediary as the case may be.
Below the full article as appeared in the Moonstone Monitor 10 September 2015
Sub-agent Accountability
Proposal I in the RDR draft document provide for the inclusion of specifically identified forms of referrals and leads in the regulatory framework as a form of financial intermediation. It will be subject to specific conduct standards – see below.
A recent Ombud determination provides some interesting insights into situations where financial advisers appoint sub-agents to provide services to their clients.
HJ was employed by Sanlam, and had a verbal arrangement with AK (the respondent) to look after the short-term needs of his clients, in exchange for a percentage of the commission. In terms of their agreement, all communication with the clients had to be done via HJ, “…including collection of information.”
The client approached HJ for advice on short-term insurance, and also provided a Santam quote from another FSP. The quotation was sent to AK with a request to see whether she could “…do the same or improve on it.”
AK drew up a new Santam quote and sent this, together with a broker appointment note, to HJ who in turn, forwarded this to the client. The policy came into effect on 1 December 2011.
On 1 October 2012, the client suffered loss when, according to him, the lock on his panel van was broken, and tools stolen from the vehicle. The initial claim was for R50 000, which was later reduced to R18 000. No reason for this is given in the determination.
The claim was refused by Santam. Initially, the reason given was that there was no proof of forced entry and later, that the tools were not specified under the All Risks section of the policy.
The client then approached the Short-term Ombud, who agreed with Santam’s decision not to pay the claim, but forwarded the matter to the FAIS Ombud for possible action against the financial adviser.
As part of her response, AK said that she sent a comprehensive schedule of the insurance to the client, who “…never came back to her to report that the tools were not insured.”
The Ombud notes that, “…sometime in 2012…” HJ resigned from Sanlam, and views this as significant as AK “…was now at liberty to contact those clients that were referred to her by HJ.”
The client contacted AK on 6 August 2012 to change the name of the company and bank details. AK learnt for the first time from complainant that he resided in Phalaborwa and not in Nelspruit. Following this interaction, the complainant’s risk address was changed on 22 August 2012 and an updated schedule posted to him. AK again indicated in her response that the complainant had not informed her that tools were not insured.
Her response to the enquiry from the Ombud concludes:
‘I feel that the client is a well-informed person who would have clearly understood his policy and made inquiries if it did not comply with his requirements. He neglected to study the policy and now wants to put the blame on me. I never spoke to the client myself and everything was handled by my office. I believe that my clerk understood that everything was in place after the quote was accepted and signed and that she requested the list of tools via Mr. HJ.’
Much is made in the determination of the fact that the respondent did not deal directly with the client.
Respondent’s attention was further drawn to section 2 of the Code, challenging that her opting to adhere to her business arrangement with Jacobs would have seen her violate the provision. Respondent was asked to demonstrate how she could meet the demands of the Code while observing her arrangement with Jacobs.
In her response to the Ombud on 29 May 2014, AK mentioned that she only had sight of the complainant’s initial e-mail to HJ after the claim was rejected. She claimed she had informed HJ that, if the client wanted to specify the tools, he should have supplied her office with a list and proof of purchase. HJ denied this in an email to the complainant after the claim was refused.
AK further stated that:
‘it was general practice to accept clients for short term insurance from colleagues, but not to have direct contact as we are in competition with one another as far as life insurance is concerned.’
Although scathing in its views on the role of HJ as the referring agent, the determination does not implicate him in any way as far as the loss suffered by the client is concerned.
This determination clearly posts some important questions about accountability as far as the introducing and servicing intermediaries are concerned.
The full determination can be downloaded here.
Proposal I: Conduct Standards for referrals and lead generation
Certain specifically identified forms of referrals and leads will be included in the regulatory framework as a form of financial intermediation, and will be subject to specific conduct standards. Conduct standards in this regard may relate to:
- Disclosure of and limitations on the nature and source of remuneration or other financial interest derived by referral or lead provider.
- Management and disclosure of any potential conflict of interest between the provider of the referral and the customers or other parties concerned.
- Measures to ensure customer consent and protection of customer information in appropriate circumstances.
- The responsibility of product suppliers or intermediaries in relation to their use of referral or lead generation services.
In cases where the referral or lead provision does not meet the relevant criteria to be regarded as financial intermediation, depending on the structure of the arrangement, it may nevertheless be subject to relevant standards for marketing and advertising activities, or for the outsourcing of activities by a product supplier or intermediary as the case may be.
