In this article we highlight two Appeal Board rulings to demonstrate the importance of understanding the role of the office of the Financial Advisory and Intermediary Services (FAIS) Ombud in performing its functions as described and mandated by the FAIS Act.
The main objective of the FAIS Ombud is to consider and handle FAIS related complaints in a manner that is fast, procedurally fair, informal and economical.
The mission of the FAIS Ombud is to promote consumer protection and contribute to the integrity of the financial services industry by resolving complaints in a manner that is impartial, economical, accessible and, at all times, equitable.
The FAIS Ombud strives to provide a fair and honourable service to ensure that financial customers have access to and are able to use affordable alternative dispute processes for complaints.
In resolving complaints, the FAIS Act and Rules require the FAIS Ombud to act independently and impartially. In doing so, the FAIS Ombud would normally resolve complaints through mediation or conciliation and, if these methods are not successful, the Ombud will issue a determination.
Case Study 1
In the J.C. Mostert v L. Landman matter the Appeal Board ruled against the FAIS Ombud’s determination and referred the complaint back to the Ombud for further consideration.
Briefly the facts of the matter: The client (Landman) required the advice of a Financial Services Provider (Mostert) in assisting her to invest the proceeds of her late husband’s estate. The FSP made an investment of R650 000 on behalf of the client into the Sharemax Retail Park Holdings. The client complained to the Ombud based on the FSP’s poor advice to invest the monies in a high-risk investment such as Sharemax. The client was of the view that the FSP’s advice was flawed as the risk involving Sharemax was not suitable to her circumstances. The Ombud made an order in favour of the client and directed the FSP to pay an amount of R650 000 with interest to the client. However, the Ombud made this order based only on the version of the client and did not take the FSP’s version into consideration because the Ombud alleged that the FSP did not provide any response to the complaint. However, during the Appeal, the Appeal Board found that the FSP had in fact submitted a response to the complaint, and this was supported by proof of an affidavit.
As stated above, the office of the Ombud is bound by the FAIS Act and should act independently and impartially when discharging its function and dealing with complaints.
The Appeal Board needed to decide whether (1) the complaint had prescribed, and (2) the Ombud’s failure to consider the FSPs response meant that the determination should be set aside and be referred back to the Ombud for proper investigation, taking into consideration the versions of both parties.
After further consideration of this matter the Ombud concluded in her ruling that the initial responses received from the advisor were not considered due to an administrative error and she further stated that such responses contained submissions of fact and the law that are relevant to the issues in the complaint. The Appeal Board found that “the complaint was appropriately submitted and that it had not prescribed.” The Appeal Board set aside the determination and referred the case back to the Ombud for review and further consideration, due to the fact that the Ombud failed to meet the requirement of being “objective and impartial before making a determination.”
The Ombud has not yet finalised the matter, and we still await the outcome.
Case Study 2
The Appeal Board considered an appeal against a determination by the FAIS Ombud.
Briefly the facts of the matter: Waterboer requested Audenberg  to invest a cheque of R215 000 on his behalf and requested Audenberg to choose an investment carefully, as he was not in a position to lose any money. Waterboer was nevertheless advised to invest in a high-risk syndication, City Capital SA Property Holdings, by Audenberg. Waterboer was later informed that City Capital had been provisionally liquidated, however Audenberg reassured him that he had lost none of his invested capital and had only lost the dividends payable to him.
Waterboer lodged a complaint with the Ombud after he was informed that his investment of R215 000 was worth R79 857 at 52c a share, which was R135 143 less than his original investment. Audenberg confirmed that the outcome of a risk analysis indicated Waterboer was a moderate risk investor despite his claim that he was a conservative investor. The Ombud said a responsible FSP, acting in their client’s interests, would have appreciated that Waterboer had no capacity to risk his life savings and would have looked for investments that preserve his client’s capital. The Ombud ordered Audenberg to repay Waterboer the money he invested on their advice in City Capital, as Waterboer could not have made an informed decision about the investment because of a failure by Audenberg to appropriately advise the client.
In the Audenberg matter, the Appeal Board expressed concern about how the office of the Ombud handled this case. The complainant lodged the complaint with the Ombud on 28 April 2010. Audenberg addressed the matter on 29 July 2010 and also followed up with the Ombud, the last being on 5 May 2011. The first action from the Ombud was on 8 January 2014. The Ombud did not inform Audenberg that the matter was still pending, and they were kept in the dark. Only on 15 September 2015, did the Ombud make a determination to repay Waterboer, and to add insult to the injury it took the Ombud ten months to deal with the application for leave to appeal. This is not the first instance where the Appeal Board had to point to the failure of natural justice in the office of the Ombud and unjustifiable delays in processing matters. The other problem with the Ombud’s finding is that the Ombud failed to have regard to the fact that the company was under provisional liquidation for a while, but has long since been trading in a solvent position, and thus did not take all the facts into consideration when making the decision. The Ombud simply failed to follow-up or test the information that came from Audenberg, creating the impression that whatever a complainant says must be true and what the FSP says must be untrue.
The Appeal Board pointed out failures of natural justice in the office of the Ombud, and unjustifiable delays in processing of some matters. It also raised its concern about the failure of the office of the Ombud to comply with its statutory duties and stated that this may lead to the setting aside of determinations, which would be to the detriment of complainants. Still, the Appeal Board upheld the complaint, and ordered Audenberg to repay Waterboer.
What we can learn
Most of the complaints that the FAIS Ombud deals with are resolved by means of settlement, and very few of the FAIS Ombud’s decisions are taken on appeal. But, considering the findings of the Appeal Board in these two cases, it raises the question as to how many other cases, which have not been appealed, would also have been overturned.
These two cases highlight the importance of recognising the FSPs rights in terms of various legislation such as the FAIS Act, the Promotion of Administrative Justice Act  and the Constitution to have a dispute resolved by the application of law by means of a fair hearing.
Considering the above, it is our opinion that if your documentation is in order and you receive a complaint, you will be able to successfully defend that matter. The type of documentation should include a record of your discussions (e.g. info gathering, needs, concerns), evidence of the suitability of a financial product/advice for that client, and a record of sharing this info and acceptance of this by the client.
To read the full cases, click on the links below: