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    FAIS OMBUD Report Highlights Ongoing Problem Of Bad Advice



    The release each December of the Fais Ombud’s annual report provides a good opportunity to remind you of the recourse open to you if you have been on the receiving end of bad financial advice.

    Under the Financial Advice and Intermediary Services (Fais) Act, financial services providers, which include financial advisers and insurance brokers, are obliged to adhere to a code of conduct when dealing with you, the customer.

    The ombud, officially the Ombud for Financial Services Providers, has the power to act on complaints against advisers by consumers and, where the complaint is found to be valid, reach settlements with advisers or issue determinations against them on compensation up to R800 000.

    Losing money in an investment is not sufficient grounds for a valid complaint. People lose money in investments every day. What does constitute grounds for complaint is the suitability of the product you were advised to invest in.

    The Fais code of conduct requires a financial adviser to assess you thoroughly before advocating a particular product, taking into account your financial position, age, personal circumstances and risk profile. What’s more, the adviser must keep a written record of his or her interactions with you and the advice given. If there is no such record, there is no proof on the adviser’s side that the products he or she chose for you were carefully considered and based on a thorough assessment.

    Each year sees a raft of cases of often elderly people and pensioners having lost large portions of their life’s savings in some high-risk investment or another.

    For many years the ombud dealt with the aftermath of the implosion of the property syndication scheme industry, notoriously Sharemax, through which investors invested in a number of property developments that collapsed after the 2008 global financial crisis.

    While a huge backlog of property syndication cases is slowly being whittled down (1 114 cases are still to be resolved), there will always be new high-risk investment schemes to ensnare unsuspecting investors, despite the regulators’ best efforts to control them.


    The Fais Ombud’s annual report for its financial year April 1, 2019 to March 31, 2020 was released yesterday. During the reporting period – in November last year – advocate Nonku Tshombe took over as the ombud from Naresh Tulsie.

    The report notes that R57 263 775 was clawed back for consumers in settlements and determinations, which is somewhat lower than the R66 668 302 clawed back in the 2018/19 financial year. This was largely due to a decrease in the number of determinations issued. However, the report says the bulk of this money came out of “informal settlements that resulted from conciliation processes facilitated by the Office of the Fais Ombud between financial services providers and consumers. This is an encouraging turn which this office hopes will persist, as it demonstrates improved relations between financial services providers and their customers,” the report says.

    During the reporting year, the ombud received a total of 8 835 new complaints, of which 5 750 fell within the ombud’s mandate. This exceeds the 5 589 complaints within its mandate received during the preceding financial year.

    The report notes that 81.76% of complaints were resolved within three months, 91.18% within six months, and 96.25%% within nine months of receipt.

    A total of 1 850 complaints were settled or resolved in favour of the complainant, which is on par with the 1 871 complaints settled/resolved during the 2018/19 financial year.

    Most of the complaints (29.77%) involved the selling of long-term insurance policies. However, shortterm insurance complaints were a close second, at 27.72%.

    Complaints about investment and retirement products comprised 21.24% of total complaints.

    Fedhasa also pointed to Stats SA’s Accommodation and Food and Beverage key findings reports for January 2021 showed a significant decline in total income for tourist accommodation (-72.9%) compared with January 2020. The food and beverage sector did not fare much better, with a decline of -36.1% in total income generated in the same period. It said, “However, the figure of 56 companies going into liquidation does not reflect the many more hospitality businesses that have closed down, but not formally followed the liquidation process, so the pictures is likely much worse than these numbers indicate,” said Rosemary Anderson, chairperson of Fedhasa. 

    “The hospitality industry was left in tatters by the the first and second waves and many businesses are now so financially compromised that they are unable to hang on any longer, especially in light of a predicted third wave and resultant lockdown measures. 

    “Some hotels, which are wholly reliant on business and international tourism, have been closed for a full year now,” said Anderson. She said that a major source of concern is that in anticipation of Easter, the government will introduce restrictions that will have further detrimental impact on the tourism and hospitality businesses that have been relying on a financial boost over this period to survive and retain staff.

    “Fedhasa has designed a robust set of health and safety protocols for Covid-19, and our member are acutely aware of the importance of adhering to these standards in order to safeguard the public and be able to continue trading. Despite the likely increase in domestic travel over Easter, arguably there is no sector quite as cognisant of the direct relationship between adherence to protocols and the recovery of the sector than the hospitality and tourism industry.” said Anderson.

    Continued trading with strict compliance to safety measures, combined with the mass vaccination of the South African public, is the only solution, she said.

    “Over 120 countries are not allowing South African travellers in, or their citizens to travel to South Africa. It is concerning that our vaccination programme is yet to begin in earnest, and we risk being left behind unless we soon start to see more progress in this regard.”