Client complaints to the FAIS Ombud are at a record high, which emphasises the importance for Financial Service Providers (FSPs) to keep comprehensive records of advice.
The FAIS Ombud, who investigates and resolves complaints in terms of the FAIS Act and its Rules, received 10 846 complaints from 1 April 2016 to 31 March 2017. Rising by 10% on the previous financial year’s figure, the number of complaints has for the first time exceeded 10 000 in a financial year.
The percentage of new complaints per product type received were:
- Short term insurance: 30%
- Non-FAIS: 27%
- Long term insurance: 26%
- Investments: 13%
- Retirement: 3%
- Medical Assurance: 1%
The above figures indicate that advisors dealing with short-term and/or long term insurance have more than twice the chance of a complaint being laid, compared to advisors who write investments. If you operate in these areas, be watchful and ensure your processes and records are comprehensive and current to minimise the chance of a client complaint.
While the number of settlements decreased from 1 150 to 1 005 during the 2016/2017 financial year, the settlement value increased from R50.2 million to R58.3 million. The increase is due to the 68 determinations issued. This is the second highest number of determinations issued by the Ombud’s Office. There were 24 determinations issued in the previous year.
Of the complaints, 5 630 fell within the ambit of the FAIS Ombud. The other complaints were referred respectively to the Ombud for Short-term Insurance, the Long-term Insurance Ombud, National Credit Regulator, JSE Ombud, Council for Medical Schemes, Motor Industry Ombudsman, Financial Services Board (now known as Financial Sector Conduct Authority) and the Ombudsman for Banking Services.
One of the determinations made by the FAIS Ombud is M Mkhohlwa v Workers Life Assurance Company Limited.
In this case, the complainant approached the Workers Life Assurance Company Limited (the FSP) for funeral cover for himself, his mother and cousin. He informed the FSP of a history of tuberculosis within the family. Two representatives from the FSP provided him with financial advice and intermediary services, explaining the exclusions and waiting periods. He was informed that his mother was ineligible for cover due to her age, but the cousin could be covered if he survived the three-month waiting period from the policy effective date. The parties understood that the cousin had a pre-existing condition. Although the representative said the mother was not eligible, she did in fact qualify for funeral cover as the maximum entry age for extended family members was 80. On 6 May 2013, the complainant insured himself and his cousin.
On 23 March 2014, the cousin passed away and the complainant lodged a claim with the FSP. The FSP provided the client with a medical form for completion by the cousin’s medical doctor. The doctor confirmed the cousin had been treated for tuberculosis in May 2012. It was also recorded that the cousin had sought advice for HIV-related infections. The claim was rejected based on the exclusion clauses.
The FSP referred to the 12-month waiting period and said it had informed the complainant of the exclusion. The second exclusion, which applied to claims pertaining to extended family members, was contained in the policy document that the complainant received only after concluding the contract. The complainant argued that he had been told that his cousin would be covered if he survived the three-month waiting period. No further details were disclosed, and he was not advised that the cover under the extended family members’ benefit was inappropriate.
The Ombud upheld the complaint and ordered the FSP to pay the complainant the amount of cover of R10 000, finding that:
- The FSP ignored the legal requirement to record the advice given. The application form could not be used as a record of advice, as it was generic and did not apply to the complainant’s specific circumstances.
- Advice on suitability cannot be abstract; it must relate to the client’s circumstances.
- The FSP failed to draw the complainant’s attention to the exclusions in their proper form.
- The FSP’s conduct undermined the provisions of the FAIS Act and the General Code.
The determination illustrates that keeping a record of advice is a vital part of an FSP’s job. FSPs that fail to keep proper records of advice expose themselves to risk. It is just as important to keep a record of all correspondence and communication with clients.
Although the process of keeping appropriate records takes time, the benefits far outweigh the drawbacks. In the longer term, it should build efficiencies in your business. Also, dealing with client complaints can be costly and time consuming. With a complete record of advice at hand, you can swiftly sort out client complaints before they escalate.