The Financial Services Tribunal (FST) has affirmed a decision by the FAIS Ombud to dismiss a complaint against a financial planner whose client alleged that his “grossly negligent” advice resulted in her receiving a lower annuity.
The Tribunal reached this conclusion after analysing the record of the interactions between the parties, which, contrary to the client’s allegations, showed that the planner had informed her throughout the process of the nature of the investment.
In a determination in February this year, the FAIS Ombud dismissed a complaint from Lorraine Brummer against Ian Holness, an Alexforbes financial planner, finding it had no prospect of succeeding.
In August, Brummer asked the Tribunal to reconsider the Ombud’s decision, asserting that Holness had advised her incorrectly when she invested her retirement benefit with Old Mutual and Momentum.
She contended that Holness should be held responsible for the lower rates she received on her guaranteed life annuities. Brummer wanted the Tribunal to restore her to receiving just over R49 000 a month as would have been the case if she had been given “the correct advice”.
The Tribunal noted that the Financial Sector Regulation Act does not provide for it to make an order for specific performance.
Brummer approached Holness at the beginning of April last year, before she was due to retire at the end of that month. At that stage, Brummer had already decided that she wanted to split two-thirds of her retirement benefit between two annuity providers.
Holness endorsed Brummer’s decision to split the benefit between Old Mutual and Momentum but said he could obtain better annuity rates than Brummer could if she contacted the providers herself.
He obtained a special rate from Old Mutual that was higher than the rate Brummer had obtained. This rate aligned with the rate from Momentum. He told Brummer that the quote from Old Mutual was a special rate and fixed for 30 days.
No undue delay
Brummer alleged that Holness used incorrect amounts when requesting quotes from Old Mutual and Momentum. He had asked for quotes based on her full retirement payout of R4.62 million, whereas Brummer intended to split the payout between the two annuity providers. She argued this led to misrepresentation in the annuity rates provided by the insurers.
Holness explained that the annuity rates were quoted as a certain rate per R1m and therefore splitting the amount did not make a difference to the rate that was quoted.
Brummer alleged she received a lower rate from Momentum because it received the money on 9 June 2023 and not on 12 June 2023. In her view, the delay was a result of Holness’s “misrepresentation” to Momentum that it would receive the full R4.62m, not half the amount.
The Tribunal found no evidence that Holness had intentionally misrepresented any information to Momentum or that he had caused any undue delay.
Emails from Momentum showed that while the insurer received the proof of payment on 9 June, the money itself was received on 12 June. Furthermore, Brummer only signed the quote on 13 June. Therefore, the higher rate of the previous week could not apply.
Rates fluctuate
Brummer accused Holness of providing misleading information about the special rate offered by Old Mutual. Specifically, she contended that he did not inform her that the special rate applied only to investments above R5m and that the rate was available only from time to time.
The Tribunal examined the evidence presented, including meeting minutes, emails, and communication between Holness, Brummer, and Old Mutual’s representative, Alde Ward.
The FST confirmed that the R5m threshold was a condition for Old Mutual’s special rate offer; therefore, Brummer would not have qualified for the special rate even if her investment had not been split.
The tribunal found that Holness had communicated the fluctuating nature of annuity rates and the fact that special rates are not guaranteed and are available only from time to time.
The minutes of a meeting with Brummer on 18 April 2023, when she formally engaged Holness as her adviser, explicitly mentioned that annuity rates of life insurance companies change weekly because of prevailing interest rates, and that Old Mutual had a 30-day guarantee on its rates with special quotes.
Misinformation about the special rate
The Tribunal found that although Holness and Brummer had initially been misinformed about availability of the special rate, there was no intentional wrongdoing by Holness, and Brummer had accepted the final investment decisions knowingly.
The record showed that, on 5 June, Holness received a special quote from Old Mutual for a 20-year period. He sent this quote to Brummer, who signed it after Holness assured her it would be amended for a 25-year period. At this stage, no proof of payment or final rate was determined.
Holness tried to change the quote on 7 June, asking Ward to adjust the period to 25 years, as Brummer had requested. However, Old Mutual responded that because the competing quote from Sanlam was for 20 years, it could not apply the special rate to a 25-year term. Instead, Brummer would have to choose between a special rate for 20 years or a standard rate for 25 years.
On the same day, Brummer confirmed via WhatsApp that she accepted the final quote for the 25-year term.
Unsatisfied with Old Mutual’s offer, Holness obtained a quote from Momentum for a 25-year guarantee in an attempt to get a better rate from Old Mutual on 9 June.
On 12 June, Ward informed Holness that Brummer’s investment could not qualify for the special rate because it was below the R5m threshold. She apologised for the misinformation.
The Tribunal noted it was only at this stage that Holness became aware of Old Mutual’s R5m threshold for the special rate.
Holness phoned Brummer the following day and explained the situation to her. He advised Brummer to stay with Old Mutual and Momentum, because the income would still higher than what she had initially signed for.
Brummer admitted that she signed the quotes from Momentum and Old Mutual on 13 June. But she submitted that she had no other choice, saying her relationship with Holness would deteriorate if she did not sign and accept the quotes as soon as possible.
The Tribunal rejected this assertion, saying there was no reason for Brummer to maintain her relationship with Holness at that stage.
“She knew what she was signing, and by signing the quotes gave the impression that she was satisfied with the investments and accepted the correctness of the quotes.”
Acted in the client’s best interest
The Tribunal upheld the FAIS Ombud’s decision to reject the complaint, concluding that Holness could not accused of negligence or not always acting in Brummer’s best interest.
“Neither he nor Alde Ward of Old Mutual had known of the limits on the special rates. It cannot be found that Mr Holness acted in bad faith. Old Mutual’s representatives apologised to Mr Holness for the wrong information, underlining that he had not been informed of the limits to the special rates.”
Furthermore, the fact that Brummer received a lower rate on 12 June was because the payment of the annuity and the finalisation of the quotes could only be done in that week.
The FST concluded that Holness always acted to the best of his ability and knowledge to assist Brummer to obtain the best rates available.
Lessons for advisers
The FAIS Ombud and the Tribunal’s decisions in favour of Holness have several key lessons for financial advisers. These include:
Comprehensive record-keeping
The Tribunal reviewed meeting minutes, quotes, emails, and WhatsApp messages that documented Holness’s communications and actions. These records demonstrated that Holness had kept Brummer informed throughout the process and had provided her with all the relevant information.
Advisers should keep detailed records of all client interactions, including verbal and written communications, as well as any financial reports or advice provided.
Communication and transparency
Holness consistently communicated with Brummer about the status of her investment, the annuity rates, and the options available.
He informed Brummer early in the process that annuity rates fluctuate weekly and are influenced by market conditions, which was documented in the minutes of their April meeting. The Tribunal recognised that Holness was transparent about the fact that these rates could change.
Holness promptly informed Brummer once he became aware of the limitation on the Old Mutual special rate. This openness demonstrated that he was not deliberately withholding information but acted in good faith.
Try to secure the best deal for the client
Holness sought quotes from multiple insurers to secure the best annuity rate for Brummer. He took steps to accommodate Brummer’s request for a 25-year period. When Old Mutual said it could provide a special rate for 20 years only, he attempted to obtain a better rate by presenting Old Mutual with a competing quote.
