During May 2017, the FAIS Ombud granted an order in favour of the complainant in a matter which highlights the duties of FSPs regarding disclosures, suitability of advice and Treating Customers Fairly (TCF) principles.
In brief, the complainant concluded a life cover contract for both her husband and herself but was advised by one of the FSPs representatives that the inception date of the policy would be a future date (the contract was concluded on 23 March 2015 and the inception date was set as 1 May 2015). The representative advised that it was too late in the month for the policy to begin in April 2015. It so happened that during the month of April, the complainant’s husband passed away in a motor vehicle accident and as the policy had not yet come into effect, the complainant’s claim was repudiated. As the complainant’s husband was the sole provider, this left her and her children without any source of income.
It was later found that the policy could have been incepted at an earlier date and that the FSP offers Immediate Life Cover, however, the complainant was not informed of these options. The FSP failed to provide this information to the complainant, therefore she was unable to make an informed decision regarding the date of inception of the policy and to her detriment, accepted a later date for cover.
Further, when the claim was rejected, the complainant received correspondence from the FSP setting out incorrect information on two separate occasions. The incorrect information pertained to the payment of premiums and the date of inception allegedly being chosen by the insured. The Ombud noted that it was disturbing that an FSP could rush to communicate its decision to reject a claim without taking the time to verify the facts of the matter. This goes against the principles of TCF.
The Ombud concluded that the representative had failed to apply his mind to the complainant’s circumstances. If he had done so he would have understood the risk confronting the complainant as neither her nor her husband had life cover. This information alone should have alerted the representative to the urgency of the client’s need.
“TCF aims to, amongst others, help customers fully understand the features, benefits, risks and costs of the financial products they buy, and minimise the sale of unsuitable products by encouraging best practice before, during and after a sale” 
The Ombud set out that FSPs are required to deliver the following six outcomes of TCF to its customers :
- Customers can be confident they are dealing with firms where TCF is central to the corporate culture.
- Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.
- Customers are provided with clear information and kept appropriately informed before, during and after point of sale.
- Where advice is given, it is suitable and takes account of customer circumstances.
- Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect.
- Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint.
After reassessing the claim, the FSP conceded to pay the complainant the amount of the Immediate Cover Benefit (R400 000) as opposed to the two million rand which was the value of the life cover. The Ombud was of the view that the FSP, through its failure to suitably advise the complainant and affording her an opportunity to make an informed decision, should in addition to the R400 000, be held liable for the maximum amount of R800 000 as per the jurisdictional limit of the Ombud’s office.
FSPs are therefore urged to be diligent in understanding and applying their minds to the circumstances of their clients, to provide clients with all the information which is needed to make an informed decision and to ensure that the principles of TCF are the foundation of all business processes and client engagements. FSPs are also encouraged to take cognisance of the consequences of failing to adhere to their responsibilities in terms of the FAIS Act, the General Code of Conduct and the Treating Customers Fairly Regulatory Framework.