The ombuds are on your side
Commenting on the two reports, Finance Minister Pravin Gordhan says the increase in the number of justifiable complaints received by the Financial Advisory and Intermediary Services (Fais) ombud’s office in the 2015/16 financial year from 3 699 in the preceding year to 4 263 is indicative of a growing awareness among South Africans about the ombud system.
The office of the Pension Funds Adjudicator finalised 9 970 complaints over the past year, compared with 6 331 the previous year. There were 3 475 determinations made – an increase of 20.74% year-on-year.
However, Pension Funds Adjudicator Muvhango Lukhaimane notes that it is still a cause for concern that at least 70% of the complaints relate to withdrawal benefits, pointing to inefficiencies in fund administration processes.
“This extends to the allocation and distribution of death benefits, which is responsible for the second highest number of complaints finalised,” she says.
Fais ombud Noluntu Bam says many complaints that appear to be about contractual terms have their origin in unsound or inappropriate advice.
“While there may seem to be no correlation between advice and access to the office, consider the example of a bank customer who entrusted proceeds of her immovable property while house hunting for a smaller home. In less than three months, she had found a home she wanted to buy.
“She signed an offer to purchase and went to the bank to retrieve her funds, only to be told she was bound by the contract she had signed, which effectively saw her money land in an insurance product where it had to remain for 10 years.
“She was made to sign forms acceding to heavy penalties, after which the remaining funds were paid into her account. The bank employee she was dealing with did not direct her to our office because the consumer was ‘in breach of the contract’,” says Bam.
“It was the consumer’s persistent efforts to see justice done that led her to us. Following a decision by this office, the bank had to pay back the penalties confiscated from the consumer’s investment.”
Bam says that because of the intangible nature of financial products, there is often little opportunity upfront for the consumer to distinguish between their needs and what the product can really do.
“Unlike tangible products, there is no opportunity to examine the product or even to test it. The consumer relies on the advice of the person advising them
and accepts their attestations of what the product will do.
“By the time the consumer awakens to the limitations of the product, the damage has already been done. By then, it is the consumer’s recollection of the advice against the contract document,” says Bam.
CONSUMERS NOT MADE AWARE OF THE EFFECT OF PENSION INVESTMENT OPTIONS
“A significant number of consumers have lost their life savings following advice to invest in complex investments such as public property syndications.
“Although the financial advisers involved boasted decades of service in the financial services industry, including being licensed by the regulator, it has been found that they knew very little about these investments and were not in a position to adequately advise their clients of the risk of losing their capital,” Bam says.
What intermediaries fail to communicate to their clients is the reality of the sacrifices and changes in lifestyle that are required if a client has not saved sufficiently for his retirement.
“Instead, intermediaries, to the detriment of the client, attempt to remedy the shortfall in retirement capital by recommending that clients invest in living annuities, where they can choose an income of between 2.5% and 17.5%.
“They do not inform the client about the real risk of depleting the capital. A worst-case scenario is where clients are advised to invest in small unknown companies with no track record and no apparent means to generate what appear to be attractive returns.
“There are two problems with the last scenario. In the first instance, two materially different products would be compared solely on the basis of a return. This is frowned upon because it is misleading.
“The second is failure to act with honesty and integrity, and with care and diligence, with no regard for the interests of the client and the integrity of the financial services industry,” Bam says.
INCREASE IN UNCLAIMED BENEFIT QUERIES
Lukhaimane says the spike in complaints to her office is largely attributed to an increased awareness of the role of her office, as well as publicity around unclaimed benefits.
“Complaints show that too many members continue to experience low levels of service from their funds, be it regarding the infrequent or poor quality provision of benefit statements, weak explanations of fund information, delays in requests for transfer to other funds or inordinate delays in the payment of retirement and death benefits,” she says.
Lukhaimane notes that there is a disturbing trend towards a high number of complaints lodged by tracing agents.
“Unscrupulous tracers charge for their services and consumers need to be aware that they can directly approach our office for assistance, at no cost to themselves,” she says.
In an important ruling, Lukhaimane ordered the MineWorkers’ Provident Fund to investigate and pay a death benefit, although the complaint was difficult as it was received out of the prescribed time limit.
The complainant told Lukhaimane that the MineWorkers’ Provident Fund had failed to allocate and distribute a death benefit of R135 285.07 following the death of her husband in November 2001.
Although it was almost 14 years since the man died and although the complainant had claimed the death benefit in 2004, there were no records to prove that she had lodged a claim before the expiry of the prescribed three-year minimum period permitted in terms of the Pension Funds Act for her complaint to be investigated.
However, upon receipt of the complaint, the MineWorkers’ Provident Fund carried out a detailed investigation and discovered that certain documents were outstanding and had delayed the process of finalising the claim.
The fund was ordered to finalise the claim and pay out the benefit.
In her determination, Lukhaimane said the fund’s decision to accommodate the claim after the prescribed three-year minimum period was “commendable” as it helped reduce the amount of unclaimed benefits held by retirement funds.Read Fin24's top stories trending on Twitter: Fin24’s top stories