The phrase “Friends, Romans, Countrymen, lend me your ear” was not uttered by Vincent van Gogh after the painful self-inflicted loss of his hearing appendage.
A recent FAIS Ombud determination reminded me of this speech by Marc Anthony in Julius Caesar, another of the Bard’s classic plays. From the Ombud case, it is evident that lending your ear should carry the same warning as that other phrase by Shakespeare: Neither a borrower nor a lender be.
In essence, a client’s retirement annuity matured. Rather than approach his financial adviser, he phoned the product provider’s call centre to enquire about his options, and was duly sent the documentation, including the form on which he had to indicate which option he chose.
He then saw fit to discuss this with his adviser, who informed him that, as his lump sum was below the minimum, he could have the full amount paid out to him, subject to the Receiver’s share of the spoils. The adviser also suggested that he personally submit the relevant documents at respondent’s offices.
A financial advisor in the employ of respondent, Mr. Singh, advised the complainant that he was not permitted to withdraw the full amount, but only one third of the fund value, and obliged to purchase a compulsory annuity with the remaining two thirds. The complainant says he reluctantly agreed to the advice of withdrawing only one third (R70 000) because he had an urgent need for liquidity. Of this, he received R48 000, while the Receiver took R17 000 and the product provider R5 000, presumably as an early termination penalty. (These sums in the determination do not quite make sense, but that is not relevant to this article).
A few days later, the complainant mentioned the issue again to his financial advisor who was adamant that respondent had failed to appropriately advise complainant given the prevailing income tax laws at the time, which stipulated that full commutation was allowed where the entire value of the fund does not exceed R247 500.
The complainant then wrote to the product provider’s area manager.
“For a full month, complainant says he was not given any straight answers, with respondent merely advising that the matter was under investigation. On 5 July, complainant telephoned the area manager who conceded that the respondent had made a mistake but that the problem was with SARS who were unwilling to assist respondents. According to the complainant, the area manager advised him that respondent at that stage had eight such cases where mistakes had been made by its employees in advising respondent’s customers.”
“…despite respondent’s concession that it had made the mistake in advising complainant, including its inability to resolve the problem, respondent can provide no evidence that it referred its client to this Office (the Ombud’s).”
On 9 September 2016, the complainant wrote to the respondent’s internal arbitrator who responded by advising that SARS had refused to assist them in reversing the transaction. Respondents offered complainant an amount of R10 000 as compensation for the inconvenience, which the complainant rejected.
“On 30 September 2016, respondent replied stating that it was unable to reverse the transaction without SARS’ approval. Respondent further argued that if it were to pay the full commutation value, complainant would be unjustly enriched.”
In a subsequent letter, the provider’s internal arbitrator informed the complainant that the obligation is on the member to ensure that he is aware of the income tax implications flowing from his election before an instruction is submitted to the Fund. “Ignorance of the law is not an excuse for not making the correct election.”
The Ombud’s response to this reads:
“Properly construed in context of the entire e-mail and the circumstances of this case, the line conveys that complainant is the author of his own misfortune. Nothing could be further from the truth. Respondents’ conduct makes a mockery of the FAIS Act and the ‘Treating Customers Fairly’ principles.”
In addition, the Ombud quotes from the Income Tax Act:
- The obligation is on the fund to ensure that a member is aware of the Income Tax implications flowing from his or her election before applying for a tax directive, and
- The cancellation of a tax directive application will only be permitted in circumstances where a bona fide mistake was made.
When approached by the FAIS Ombud, the respondent admitted failure to resolve the complaint and sought the Ombud’d guidance on how to proceed.
The response from the Ombud is scathing, to say the least. This sentence essentially sums it up:
“Respondent must be condemned for the self-serving manner in which it has dealt with the complaint. Respondent’s conduct breached the provisions of the Act and Code and is anathema to the TCF principles.”
This resonates with the second line in the Marc Anthony speech: I come to bury Caesar, not to praise him.
The Ombud upheld the complaint and ordered the respondent to take the steps necessary to reverse the transaction, recalculate the tax and pay the complainant what is due to him, less permissible deductions.
One wonders how things may have turned out, had the client elected to work through his personal financial adviser who would probably have done the job without any financial gain.
Click here to download the full determination.