The FAIS Act aims to protect the public by prescribing how financial services, i.e. advice and intermediary services, should be rendered. Advisors must operate under an authorised financial services provider (FSP) licence in order to operate lawfully. The Act also lays down specific duties that relate to FSPs including the obligation to disclose specific information about the product provider, the intermediary and the financial service (the product). The FAIS Act, together with the principles of Treating Customers Fairly (TCF), also requires advisors to carefully consider which product is suitable for their client and to provide services in an honest and fair way by exercising due skill, care and diligence.
What must be disclosed?
When rendering a financial service the information set out below must be disclosed to a client so that the client is clear about who he/she is dealing with and is able to make an informed decision.
Information about the Product Provider:
- Name, address and contact details
- Name and contact details of the Complaints and Compliance Departments
- Business trading names, address and contact details
Information about the intermediary:
- Full name, contact details and address
- Name and contact details of the Complaints and Compliance Departments
- Business trading names, address and contact details
- Capacity in which the advice giver acts
- The qualification the advice giver holds
- Details of the financial services the advisor is authorised to provide and any conditions or restrictions imposed on the advisor
- Whether the FSP holds Professional Indemnity Cover or not
- Any personal or conflict of interest the advisor or the FSP he represents may have.
Information about the financial service:
- General explanation of the nature and material terms of the relevant product, namely, name and type of the financial product, the nature and extent of the benefits, material contractual information, illustrations, projections or forecasts.
- Any charges and fees to be levied against the product, including the amounts, and their frequency to enable the client to determine the net investment amount
- Nature, extent and frequency of any incentive, remuneration, commission or fee which the advisor may become eligible for
- Details of any special terms or conditions, exclusions or liability, waiting period, loadings, penalties, excesses, restrictions or circumstances in which the insurer will not provide benefits
- Any restrictions on or penalties for the early termination of or withdrawal from the product or other effects, if any, of such termination or withdrawal.
Why must it be disclosed?
Providing a client with a pack of information to read may not be sufficient as it is also required that the client is provided with information in a manner that he/she can understand. It is therefore important that when an advisor gives advice, all information is provided in writing and explained to the client.
In order to achieve the outcomes of Treating Customers Fairly, advisors must make sure that all information is clear and in plain language. Section 8(2) of the General Code of Conduct states that, “The provider must take reasonable steps to ensure that the client understands the advice and that the client is in a position to make an informed decision.” In a recent FAIS Ombud Determination, the Ombud stated that, “I am persuaded that the contents were not explained to complainant and that she was unaware of the consequences of affixing her signature to the said records,” which highlights this point.
If advisors apply the legislation comprehensively, little change will be required to achieve the TCF outcomes, as the Act and General Code of Conduct is a framework for good business practices.