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The principal nature of the duties of the Financial Services Intermediary

Published

2014

Mon

30

Jun

 

 

 

 

 

Michael Salant, Head of Legal
Southern Cross Risk Management (Pty) Ltd

 

 

 

 

Over the years, the financial services intermediary has been under significant public scrutiny.  He has been portrayed as greedy and unscrupulous. In certain adverts he has been reduced to a superfluous cost in the supply chain of insurance. And his role is often misunderstood to be a producer of the cheapest quotes.

This maligned perception is slowly beginning to dissipate but will only disappear when proficiency within the industry is the standard. Perhaps then, our critical role will be elevated to align with the value associated with other professionals employed as accountants, doctors and educators.

To reduce the incidents of dispute and to earn ourselves reputational enhancement we need to comply with our duties and obligations properly and professionally. This article aims to focus on certain core and overarching obligations in a nutshell.

The general duties of the intermediary can best be summarised in terms of Section 2 of the FAIS General Code of Conduct which states that:

A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and integrity of the financial services industry.

Prior to the promulgation of FAIS we were obligated to perform our functions in terms of the Common Law,  primarily as agents of our clients (as contractually prescribed) in a professional manner.  In broad terms we were to comply with the following factors:

  • Not to exceed our mandated authority;
  • To operate with the requisite skill and diligence;
  • To obey client’s lawful and reasonable instructions;
  • To carry out obligations with reasonable despatch; and
  • To keep the principal (ie the client) informed at all relevant times.

We furthermore were to ensure that during our relationship we were to adhere to the following

  • Put client’s needs first and avoid any conflict of interests;
  • Not make secret profits; and
  • Keep client’s money separate from our own.

Obligations were often insufficiently clarified and functions, often vague. Then came FAIS.

FAIS has introduced more certainty and has compelled us to act subject to uniform rules.  Its intention is not to simply replace our Common Law but to provide a codified, clear and fortified appreciation of expectations and obligations.  Where legislation does not conflict with the Common Law, the latter will prevail. So, do not discard pre-FAIS good practice but improve your services by performing constant assessments of compliance with FAIS.

So for those of us who have not yet done so a simple checklist including the following key directives form the Code of Conduct may be of assistance as an aid to be included on all files.

Supply of Information

When you render a financial service, make sure that representations made to a client:

  • Are factually correct
  • Are provided in plain language (cannot be misleading)
  • Avoid uncertainty
  • Are provided timeously (sufficient time for client to make an informed decision)
  • Take account of the factually established or reasonably assumed knowledge of the client
  • Are confirmed in writing on client’s request
  • Are in clear readable print size, spacing and format
  • Set out all fees and charges in monetary terms (if not reasonably pre- determinable, basis of calculation must be adequately described).

Additionally,

  • You should provide reasonable and appropriate general explanation of the nature and material terms of the relevant transaction to a client and make full and frank disclosure of any information that would reasonably be expected to enable the client to make informed decision
  • Whenever reasonable, provide client with any material contractual information, material illustrations, projections or forecasts
  • Provide concise details of any special terms
  • Fully inform a client in terms of the completion or submission of any transaction requirement that
    • It is the client’s responsibility to disclose all material facts accurately and properly;
    • If you complete or submit any transaction requirements on behalf of a client, the  client should be satisfied as to the accuracy and completeness of the details;
  •     Where a client elects:
    • to conclude a transaction that differs from that recommended by you;
    • not to follow the advice you furnished;
    • to receive more limited advice than you are able to provide
  • You should alert the client in writing, as soon a possible of the clear existence of any risk to the client, and to take particular care to consider whether any product selected is appropriate to the client’s needs, objectives and circumstances.

Incorporate the above into your practice consistently and you will professionalise your business.

 
Source: Southern Cross Risk Management (Pty) Ltd
 
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