As a financial services provider (FSP), you are legally obliged to send your clients annual statements of their financial products – even when product suppliers also send reports to your clients.
Section 7(4) of the General Code of Conduct for Authorised Financial Services Providers and their Representatives states that if you have advised a client or render ongoing financial services to him/her, the client needs to receive regular reports from you. These are written statements that specify your client’s financial products and the status of each product.
They also need to include details of:
- any ongoing monetary obligations of the client in respect of the product;
- the main product benefits;
- the investment value and the amount the client can access (if the product was marketed or positioned as an investment or has an investment component); and
- any ongoing incentives, consideration, commission, fee or brokerage payable to you for the product.
The FAIS Ombud has expressed concern about FSPs who neglect or refuse to comply with the provisions of Section 7(4) of the Code. A newsletter from the Ombud’s office refers to a complainant, a client aggrieved by the lack of reporting from an FSP, who requested a refund of all advice fees charged on his investment.
The complainant had been paying on-going advisory fees on his retirement annuity policy, despite not having seen his advisor for five years. On enquiry, the complainant discovered his broker had resigned and that he had a new broker. Not having received ongoing financial services from his advisor, the complainant wanted a refund.
The respondent first dismissed the FAIS Ombud’s complaint and refused to refund any fees, arguing that the complainant had received quarterly statements. It was pointed out to the respondent that the administration fee covered administration costs such as the issuing of quarterly statements, but it was unacceptable that the client paid advice fees and this service had not been rendered. The respondent then offered to repay the advice fees.
In the FAIS Ombud’s annual report, Noluntu Bam said the costs investors pay on their investments is a growing source of complaints. These complaints relate to undisclosed commissions on financial products, trail commissions and penalties for terminating investment contracts early.
“Many complaints point to trail fees and complainants ask why they are paying such fees when, in some instances, they last heard from the adviser on the day they purchased the investment. Almost all of these complainants claim they were not aware they were paying these costs. Some complain that they discovered they were paying trail commission only when they called the product provider, only to learn that the financial adviser left years ago.” (FAIS Ombud Annual Report 2013/2014)
The Ombud for Long Term Insurance stated in its annual report that numerous complaints revealed a divergence between the expectations of policyholders and what their insurance policies delivered. One reason for this divergence is because “the insurer’s ongoing communication during the term of the policy has not been adequate or was non-existent.”
The Financial Services Board stated in a newsletter that FSPs must send clients each year a statement containing an update on the status of their financial product. This must be done for as long as the product exists or ongoing services are rendered to the client.
More benefits to being compliant
It is vital to know the provisions of the General Code of Conduct and report to your clients regularly. Failure to do so will make it difficult to explain your non-compliance to the Ombud and your FSP will be exposed to an Ombud determination against it.
Furthermore, regular contact with clients and providing updates of their financial position offer opportunities to identify if a client’s circumstances have changed and enhance client relationships. TCF Outcome 1 speaks of a culture of compliance, and conducting this process is a great way to show clients that their best interest is at the core of your business.