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Financial Services Industry – no need to overcomplicate things







The Financial Advisory and Intermediary Services (FAIS) Act, the General Code of Conduct, the Financial Intelligence Centre Act (FICA), Treating Customers Fairly (TCF), the Protection of Personal Information Act (POPI), the Retail Distribution Review (RDR) and Fit and Proper requirements are just some of the standards and requirements in the financial services industry.

A financial adviser has to be aware of, keep track of changes, comply with and stay abreast of various legislation and principles to ensure that he or she stays in business and offers the client appropriate advice. Yes, the industry keeps changing almost on a daily, monthly and annual basis, not to mention all the technology changes. For a new financial advisor entering the financial services industry, this can be overwhelming.

But we all know that change is inevitable, and constant. Confucius said: “Life is really simple, but we insist on making it complicated.”

Working through a few determinations recently has once again shown that, amidst all the industry changes, many of the FAIS Ombud determinations were not based on new or amended legislation or ambiguous regulatory requirements. Financial advisors sometimes go “off track” by not adhering to basic compliance issues, basic business principles and sound client care standards.

Some of these include failure to disclose material terms and conditions of a specific product to a client, not being accredited to market certain products,or lacking objectivity, to name but a few.

A recent FAIS Ombud settlement published in the FAIS Ombud’s quarterly newsletter proves the point and is an example of such a lack of compliance with basic requirements.

In the specific case the complainant applied for comprehensive motor vehicle insurance. The inception date of the policy was 1 February 2015, and the monthly premium payable was R1500. On 5 March 2018 the complainant’s vehicle was involved in an accident which damaged the sunroof. As a result of the accident, the complainant submitted a claim, but it was rejected as the sunroof was not covered.

The respondent informed the complainant that he required additional cover for the sunroof as it was not a standard feature of the vehicle. The complainant however claimed that at application stage he was informed that he had to take out additional cover only if the sunroof was not fitted by the manufacturer. If the respondent advised him accordingly at the time he would have applied for the additional cover.

As part of the Ombud’s investigation, correspondence was sent to the respondent where it was requested to provide proof to show that the respondent’s representative sought to obtain all relevant and available information to ensure that the recommendation made would be appropriate to the complainant’s needs and specific circumstances.

It was furthermore put to the respondent that, if its representative had provided the complainant with details regarding the requirement of having the sunroof specifically insured, the complainant would have been in a position to make an informed decision.

In response to the correspondence from the Ombud’s Office, the respondent reconsidered its original standpoint and settled the matter to the satisfaction of the complainant with an offer of R49 903.26 in full and final settlement.

The settlement emphasises the importance of the following provisions of the General Code of Conduct that one should:

“Take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice; identify the financial product or products that will be appropriate to the client’s risk profile and financial needs.”

These are not only two of the basic Code of Conduct compliance principles, it is simple common sense.

To uphold the integrity of the financial services industry, a financial advisor must always act in a professional manner and render financial guidance to clients based on their needs and goals. In addition, he or she should aim to protect clients from financial advice that is not sound and where the best interests of the client are not one of the main objectives.

Lots of rigorous requirements have to be met, but sticking to the basics will go a long way in building client trust and ensuring that a client calls you before he or she make a financial decision. Remember: without clients you don’t have a business at all. 

Source: Moonstone Compliance (Pty) Ltd
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