The operational report from the FAIS Ombud in the 2015/2016 annual report, released on 18 November 2016, contains details of specific trends picked up in the period under review.
Forex Investments
A growing trend in complaints is the emergence of third party entities that act as introducing brokers for forex trading companies. These third party entities are not registered with the regulator (FSB), and utilise the relationship that they have with their trading partners, who are registered in accordance with the FAIS Act, to legitimise their operations. They target mainly individuals in the rural areas where, for as little as R5 000, prospective clients are lured with the promise of significant monthly returns.
These entities normally offer training to those who wish to trade directly in the markets, by providing the necessary software, training manuals and technical support. In actual fact, they are actively involved in opening and monitoring the investment, as well as the management thereof, often to the detriment of the client. In many instances the funds, which are often paid directly to the introducing entity, never reach the trading companies.
Disability and Retrenchment Benefits
There continues to be indiscriminate selling of disability products and benefits, which in turn contributes to overselling. The office has also noted a surge in complaints received regarding retrenchment benefits. Both disability and retrenchment benefits are mentioned as there is a similarity in the channels through which these products are sold, often without appropriate advice.
The complaints received by this office suggest that these benefits are often sold as an adjunct to a credit transaction, where one is likely to be offered a credit life policy to provide for any outstanding balances in the event the insured dies, becomes disabled or is retrenched. These policies often provide cover in respect of these benefits irrespective of whether the client has a need for the benefits provided, e.g. self-employed individuals, contract workers etc.
In addition, the channels through which these products are distributed claim that there is no requirement for them to provide the client with advice, and that merely providing the client with factual information (which is not recorded) with regards to the features and benefits of the policy is sufficient to discharge their responsibilities. Despite this resistance, the FAIS Ombud continues to hold these providers, who are often conflicted (as credit grantors), accountable for their actions and in that way, resolves these complaints.
Cellphone Insurance
There has been an increase in the number of complaints this office receives with regards to cellphone insurance, specifically with those policies provided by the mobile networks themselves. When consumers purchase a new mobile device, they are offered cellphone insurance by the representative at the branch, however many consumers are not always informed of the terms and conditions of the policy. For example, many consumers are not informed of the provision which states that a claim will only be paid if the original SIM was in the correct device at the time of loss.
The concerns around the non-disclosure of the exclusion applicable to SIM cards is also prevalent where one accepts an upgrade of the contract which results in a SIM swap to a new device.
The failure by representatives to disclose material clauses is heightened by the fact that the language used in the application forms is extremely technical in nature, and falls short of adequately advising the client of the consequences of utilising the incorrect SIM. The fact that the representatives of the various networks do not maintain additional records as provided for by the General Code of Conduct for Authorised Financial Services Providers and Representatives, compounds the problem.
Short Term Insurance
The statistics will once again indicate that short term insurance providers and their representatives continue to shy away from the provisions of the FAIS Act when providing short term insurance solutions to their clients. Short term insurance, along with other life assurance products, is essential to financial inclusion, which in turn would have positive effects on economic growth and the reduction of income inequalities.
Yet, despite relevant legislation, the focus of those who provide short term insurance would appear to remain on the most affordable premium possible, without any regard for what may or may not be in the client’s interests. (I find this hard to believe, seeing that the broker’s commission is calculated as a percentage of the premium – it is more likely pressure from the client making what he regards as a grudge purchase – editor)
The failure to adequately obtain relevant and available information from the prospective client is what ultimately leads to the rejection of claims in both the domestic and commercial insurance space, as insurance solutions presented by the providers are not suitable to the specific needs of the client. This, together with a lack of understanding on the part of the intermediaries of the intricacies of the policy wording, often results in a crippling effect for individuals and small businesses, in the event of a significant loss.
Assistance (Funeral) Business
The trend in respect of complaints regarding funeral business continues where clients are still plagued by unlicensed operators who have no intention of complying with the provisions of the FAIS Act or the General Code of Conduct. This office continues to receive complaints of claims not being honoured because the scheme is not underwritten, and without the necessary capital to pay out the claim. There are continuous problems with claims being rejected due to lack of insurable interest.
Most of these could be minimised if intermediaries carried out their duties in terms of the Code. (The fact that these intermediaries are exempt from writing the regulatory exams is surely a major contributing factor – editor.)
As communicated in the previous annual report, this remains a difficult area of our work as we must first trace these providers over a lengthy period. Even after all that effort, there is often an unwillingness by the provider to co-operate. As a result, dealing with these cases continues to pose enormous challenges to our resources.
