On 1 March 2016 the FAIS Ombud ordered Outsurance to replace a laptop or refund the client after finding that they had failed to provide the client with sufficient information to make an informed decision. It was also found that they failed to offer the client the option of covering certain items under his policy and to clearly explain the exclusions.
The FAIS Ombud received a complaint relating to the complainant’s (“client”) claim being rejected by his insurer, Outsurance, for his severely damaged laptop. The client took out short-term insurance cover for his household contents which was added to his existing policy with Outsurance.
Two years later, the complainant submitted a claim for damages to his laptop. His claim was rejected by Outsurance who stated that the laptop was not covered. The client was told that cellphones and portable computer equipment are only covered if they are noted under specified OUT-and-about cover in the policy schedule.
Outsurance used the defence that they had a peril based facility where only perils named in the facility were covered and that they had informed the client of the exclusions. What is important to note is that they alleged that at no point did the client mention that he owned portable electronics in order to advise him accordingly.
Finding by the Ombud
The Ombud stated that, as prescribed by section 15 of the General Code of Conduct (the Code), an advisor must ensure that the financial products recommended are appropriate and match the client’s financial needs and current circumstances. This section is peremptory and therefore does not allow for an advisor to deviate from these requirements.
In order for an advisor to be in a position to give appropriate advice, he/she must first know the client, understand their circumstances and their needs by gathering personal information from the client. Without taking the time and effort to obtain this information from a client, an advisor will not be able to recommend an appropriate product. In this case, this requirement was not adhered to as the advisor asked a predetermined list of questions which led to the client giving limited answers in response. The Ombud’s view was that the advisor could not say that the client had not fully disclosed details about his electronic equipment as he was not given the opportunity to do. The advisor’s questions failed in gathering the “right” information from the client.
The advisor also failed to advise on the exclusions related to the client’s policy or that it needed to be a specified listed item in order to receive cover. Outsurance, in their defence, did not address the issue of whether the complainant was in fact appropriately advised and therefore failed to act with due skill, care and diligence as they failed to act in the best interest of their client. The Ombud therefore found in favour of the complainant and ordered Outsurance to replace the laptop or, in not doing so, compensate the complainant with the value of the laptop.
- According to the Code, when rendering financial services, an advisor must establish whether the financial products concerned will be appropriate by assessing the client’s circumstances, and financial needs. The FAIS Ombud pointed out that the onus rests on the advisor to make the necessary enquiries about the client. Advisors must ensure that they ask the right questions in order to obtain all the relevant information from their clients. Many times, clients do not know what information is necessary and important and therefore may not volunteer information. Advisors should therefore ask questions that trigger the client to speak about:
- their current financial circumstances
- what they would like to achieve financially in the short and long term
- whether there is a change in their life-style, assets or family circumstances
- what their level of risk tolerance is
- and, what their needs are at that point in time.
Advisors should also build a relationship of trust with clients so that they feel comfortable disclosing their financial circumstances and needs as this will make it easier for the advisor to provide the client with appropriate advice.
- The Code also requires that all representations made and information provided to a client are factually correct and in plain language. In terms of TCF, customers must be provided with clear information before, during and after the point of sale. An advisor must therefore provide the client with information about the product in a way that the client can understand.
- The advice given to a client must be adequate and appropriate, taking into account the assumed level of knowledge of the client. In this case, the client had no knowledge or product experience. An advisor should test the client’s knowledge about financial products and whether clients have limited or no product experience so that they can explain the product in a way that is easily understood by a client. An advisor may use more technical language if a client is well-informed about financial products and therefore able to understand technical terms. However, if a client has no knowledge or experience of financial products, the advisor should breakdown the information in a less technical manner, and in simple language.
- Clients must be given relevant information timeously so that they have enough time to make an informed decision. Clients should not be pressured to accept a product which has been recommended. An advisor should provide the client with all the relevant information, disclosures, exclusions and limitations of both the product and their advice at the start of the process, ensuring that the client knows what they are getting into. This is not only good for the client, but also good for the business as the policy is more likely to stay on the “books” as it was “right” for the client.
- Advisors must provide their clients with concise details of any special terms and conditions, exclusions, waiting periods, penalties, restrictions and excesses or any other circumstances where a client will not be covered. This must be specifically set out and explained to the client in order to ensure that the client is aware of any restrictions from the time of inception and understands in which circumstances the benefit will not pay out. Keeping a recording of this information is very important particularly if a client alleges that such information was not provided to him at the time the advice was given.