By Moonstone Information Refinery

The FAIS Ombud’s 2022/23 includes case studies of where the Office was able to resolve disputes by way of a settlement. Below are four case studies.

Misrepresentation by a representative – Background to the complaint

The complainant submitted that she received a phone call from the respondent’s representative, telling her that she could offer her better investments than her current money market account. The complainant submitted she was told of the costs involved and decided not to invest.

The representative then assured her that she would pay back all the costs into the investment after three months if the complainant signed for a one-year fixed term. Based on the undertaking and the projected growth of 5% to 6% outperforming the money market account, the complainant agreed to invest R1 000 000.

But when they met three months later, the representative denied undertaking to pay the fees of R34 000. Despite several attempts to contact the representative, the complainant never heard from her again.

The respondent said it was unable to assist the complainant and submitted that she had signed and initialed all the relevant documents disclosing the fees.

Resolution by the Ombud’s Office

The respondent’s initial response to the complaint was that the complainant had failed to provide definitive proof that its representative had promised that the fees and charges would be paid back into the investment.

The Office referred the respondent to a fund fact sheet, which contained the undertaking in the representative’s handwriting. The undertaking was made in July 2021 and again in December 2021.

The respondent submitted that no investment product or fund guarantees or offers any refund of fees after a specific period. These investment products pay upfront advice fees to the representative, which are deducted from the investment at inception. The net investment amount is then invested. The fees were fully disclosed and were contractually binding. No reliance could be placed on external documents.

The Office’s view was that the handwritten notes misled the complainant. The complainant would not have invested if the misrepresentation had not been made. The respondent was asked to reconsider its stance and resolve the matter with the complainant.

The respondent reverted with an offer of R25 149, which resulted in her original R1m investment being returned to her. The complainant accepted the offer.

Inappropriate advice – Background to the complaint

In 2017, the complainant, who was 50 years old at the time, provided the respondent’s representative with permission to review her investment, retirement, and insurance portfolio.

The complainant was informed that she had a R103 000 paid-up retirement annuity (RA) with Sanlam. The representative advised the complainant to reinvest the funds with the respondent for five years, and a section 14 transfer was effected.

Five years later, when the complainant approached the respondent to withdraw the funds, she was informed that the policy had been implemented for 15 years. If she withdrew the funds before maturity, penalties of about R47 000 would be incurred.

Resolution by the Ombud’s Office

The Office noted that the investment period of 15 years did not appear to be appropriate for the complainant’s requirements. The respondent was asked to explain why the period of 15 years was recommended as appropriate for her needs and circumstances (section 8(1)(a) to (c) of the General Code of Conduct). The respondent was also requested to provide evidence that the complainant was informed of the consequences of the 15-year term (section 7(1)(c)(vii) of the Code).

The respondent undertook to resolve the matter with the complainant.

The respondent confirmed that R107 718.29 was invested into the RA, and the value had increased to R138 279.06, which was paid to the complainant, who accepted the payment in full and final settlement.

Poor advice about exclusions – Background to the complaint

The complainant and her husband had a credit life policy with the respondent to cover their outstanding mortgage bond, incepted in April 2018.

After the complainant’s husband was diagnosed with Stage 4 brain cancer in October 2021, the complainant submitted a claim in respect of the dread disease benefit of the policy. The claim was denied because it related to a pre-existing condition.

The complainants submitted that when they applied for the bond, they were advised to apply for the credit life policy, based on the husband’s medical history. The respondent’s representative was aware of her husband’s previous and existing medical conditions. Her understanding was that pre-existing conditions were covered after 12 months.

In response to the complaint, the respondent confirmed that the policy was a Home Loan Protection Plan Policy, which provided both the complainant and her husband with cover in respect of death, temporary disability, retrenchment, and dread disease.

The dread disease claim was reported on 31 January 2022 and repudiated because of the event occurring prior to the policy inception. The cancer was first diagnosed during 2014 and had been spreading since.

Resolution by the Ombud’s Office

Clause 4.2 of the Obligatory Disclosure Document provided that no claim relating to any pre-existing condition (which includes any medical condition, inclusive of cancer, where one has consulted a medical doctor, or treatment is being received) would be paid in the first 24 months after the start of cover.

Section 7(1)(c)(vii) of the General Code of Conduct provides that a financial services provider must provide concise details of any special terms or conditions, exclusion of liability, waiting period, loadings, penalties, excesses, restrictions, or circumstances in which benefits will not be paid.

Having been aware of the complainant’s medical condition in 2018, and in view of the 24-month exclusionary clause for pre-existing conditions, the respondent had a duty to advise the complainant of possible difficulties he could experience in claiming.

The respondent subsequently confirmed that it had paid the claim of R323 462 in full and final settlement.

Poor advice about special terms – Background to the complaint

In 2012, the complainant applied for an endowment policy with the respondent, which was incepted on 1 January 2013 for 10 years.

In 2018, the complainant made a partial withdrawal of R10 000. In 2021, she received a zero-interest loan of R10 000 on the policy.

In 2019, the complainant voluntarily requested to increase her monthly premiums on the policy.

When the complainant sought to access 100% of the remaining funds at maturity, she was informed that the policy had entered a new five-year restriction period, and the funds would be available on 1 December 2024. This was due to the premiums being increased by more than 20%.

The complainant submitted she was not advised of the consequences of increasing her premium.

Resolution by the Ombud’s Office

Section 7(1)(c)(vii) of the General Code of Conduct provides that the respondent must disclose concise details of any special terms in respect of a specific product. The complainant must be placed in a position to make an informed decision as required in terms of section 7(1)(a) of the Code. The respondent was requested to provide evidence in this regard.

The respondent decided to amend the restriction end date and allow the withdrawal. The complainant received a total payment of R69 544.20 in full and final settlement.