Uncompromised Independent

COMPLIANCE BRIEF

The year has certainly kicked off with a bang, particularly from a compliance perspective, as we saw the Ombud making more determinations in the first two months than he he did all of last year.

Hot on his heels is the FSB who gave an alarming account of the findings of their "site visits". It seems that there are major problems particularly where an FSP is not obliged to have a compliance officer (like sole proprietors) or operates with an internal compliance officer whose loyalties are divided between his employer and his legal duty.

We received news yesterday that a number of FSPs who neglected to submit annual reports and financial statements, despite repeated requests and warnings, are facing quite stiff penalties. Even at the minimum fine allowed in the Act of R100  per day, someone who had not submitted an annual report for 2005 could receive a very stiff fine if you consider the time elapsed.

One respondent to yesterday's Moonstone Investment Indicators pointed out serious problems with the records of the FSB, citing many instances where obligations were met, yet the FSB denied having received such documentation. The obvious thing to do is to make sure you get a receipt of some kind to keep your nose clean. Remember the two golden rules:

Rule number 1: The FSB is always right and

Rule number 2: If the FSB is wrong, see Rule number 1.

Soos die laaste twee sinne hierbo aandui, is dit raadsaam om maar ten alle tye seker te maak dat 'n mens alles op skrif het;  nie net wat die kliënte betref nie, maar ook die reguleerders en produkhuise.

Ons hoor verlede week dat die FSB se stelsels nie FSP jaarverslae kan lees wat gedoen is op rekenaars wat Windows Vista gebruik nie. Dit is nou nadat die finale datum vir indiening van hierdie verslae einde Oktober 2007 was. Is dit onbillik om te verwag dat die reguleerder darem êrens daarvan sou melding maak?

Daar behoort nie een Moonstone Compliance kliënt te wees wat hierdeur benadeel sal word nie omdat u voldoeningsbeampte self die verslag ingedien het en sou verseker het dat dit valideer met die FSB se rekords, maar daar is skynbaar groterige makelarye wat 'n onaangename verrassing te wagte kan wees.

Sterkte vir die res van Maart.

Die Moonstone Redaksie

Limited Advice and the law

Read More

Beperkte Advies

Hoe gereeld dring u kliënte aan op 'n volledige behoefte-ontleding?

Read More

Differentiating between Advice and Information

There is much more to this than just a lesson in semantics.

Read More

Is dit Advies of bloot Inligting?

Dis nogal belangriker as wat die meeste mense dink om duidelik te onderskei tussen die twee.

Read More 

T: +27 21 880 0688 | F: +27 21 880 0699
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Limited Advice

A standard question in the annual compliance report required by the FSB relates to the number of times where your client did not receive a full needs analysis. 

Under which circumstances and conditions would it be acceptable for a broker to provide a client with what could be described as only limited advice? It is a clearly established principle in the General Code of Conduct that financial advice to clients should always be appropriate and comprehensive enough so that such clients are able to understand what the advice means and are able to make informed decisions about it.  

The Code of Conduct does however provide for the possibility that a broker may under certain circumstances, not be able to provide the quality of advice that he/she is required to provide during the course of business. It is not uncommon either that brokers sometimes provide advice that is limited because of reasons and/or circumstances which they consider to be justifiable, but that would in fact get a definite thumbs-down from the FAIS Ombud should he be required to assess it because the client at the receiving end of the broker’s advice, laid a complaint. It is important therefore for brokers to take note of the specific conditions that apply for limited advice-giving, and bear in mind that such advice should normally be the exception to the accepted rule that complete advice should be provided under all circumstances, and not the other way round. 

In terms of section 8(4) of the General Code of Conduct the following circumstances may cause the advice provided by a broker, to be of a limited nature: 

• In the process of the broker obtaining all appropriate and available information from the client with a view to conducting an analysis before being in a position to provide full advice, the client does not make  all such essential information available, and effectively makes it impossible for the broker to advise properly; or
• the broker, having obtained the necessary information, is not able to analyse it properly, if at all, due to fact that the circumstances of the case simply does not leave reasonable time to do such analysis; or
• the client decides for reasons of his own that he does not want a full analysis of his financial position and elects to receive only limited advice from the broker.

If one of the above-mentioned circumstances arise, it is vitally important for the broker to inform the client that:

• a full analysis could not be done, and ensure that the client understands that there are in all likelihood limitations in the appropriateness of the advice that he received from the broker; and
• due to the nature of the limited advice he received, he should consider whether it is after all appropriate in the light of his financial position, objectives and specific needs.

Brokers should be wary of not treating every so-called “single need” case as presenting automatically an opportunity to provide limited advice. A client’s single need may still require from the advisor to gain all relevant information pertaining to that client’s overall financial situation, a proper analysis thereof and appropriate full advice. Unless such a client therefore clearly indicates that he does not want full advice, it is not opportune for the broker to decide on his behalf what is appropriate in the circumstances.  It follows also that if a broker himself is the cause of not having been able to collect sufficient information to analyse or not having enough time to provide full advice, he cannot rely on such circumstances on the provisions of section 8(4) as justification to furnish only limited advice.

It is possible that a client, after receiving full advice from his broker, decides to conclude a different transaction to what was recommended, or not follow the advice at all. In such cases the broker is obliged to point out to the client that he exposes himself to risk concerning his financial position, and that he should in his own best interest consider carefully whether the product chosen by him, would best suit his needs and objectives.  

A broker should keep record of any advice provided to a client in accordance with the provisions of section 8(4) so that if called upon, he can provide documented proof thereof. Failure to maintain such documentation and provide copies thereof to clients is in breach of the provisions of the General Code. 

We have come across instances where all cases of advice were provided without any needs analysis at all. If you enjoy playing Russian Roulette with a full chamber in the revolver, this would suit you too.

Praktiese Raad oor die gee van Advies

Een van die standaard vrae in die jaarlikse verslag van die RFD handel oor hoeveel maal dit gebeur het dat u kliënt nie blootgestel was aan die volle voorgeskrewe advies proses nie.

Onder watter omstandighede en voorwaardes sal dit aanvaarbaar wees indien wat  beskou kan word as slegs beperkte advies, deur ‘n makelaar verskaf word ? Dit is ‘n duidelik gevestigde beginsel  van die Algemene Gedragskode dat finansiële advies aan kliënte altyd gepas en omvattend genoeg moet wees sodat sulke kliënte in staat kan wees om presies  te verstaan wat die advies beteken en ingeligte besluite daaromtrent kan neem. 

Die Gedragskode maak egter voorsiening vir die moontlikheid dat ‘n makelaar in sekere omstandighede nie in die posisie sal wees om die kwalitieit advies te verskaf wat van hom/haar vereis word om in die loop van besigheid nie.  Dit is ook nie ongewoon dat makelaars soms advies van ‘n beperkte aard verskaf weens redes en/of omstandighede wat hulle as regverdigbaar beskou nie, maar wat beslis deur die FAIS Ombud afgekeur sal word indien hy dit moet beoordeel omrede ‘n kliënt van die makelaar wat aan die ontvang-kant van sulke advies was, ‘n klagte ingedien het. Dit is dus belangrik dat makelaars kennis neem van die spesifieke voorwaardes  wat geld by die verskaffing van beperkte advies, en in gedagte hou dat volledige advies onder alle omstandighede gegee moet word, en nie andersom nie. 

In terme van artikel 8(4) van die Algemene Gedragskode mag die volgende omstandighede daartoe aanleiding gee dat die advies wat ‘n makelaar verskaf, van beperkte aard is: 

• tydens die proses om alle gepaste en beskikbare inligting van ‘n kliënt te bekom, maak die betrokke kliënt nie al die essensiële inligting aan die makelaar bekend nie, en maak dit effektief onmoontlik vir die makelaar om behoorlik advies te gee of;
• nadat die makelaar wel alle verlangde inligting bekom het, is hy nie in staat om ‘n volledige finansiële analise daarvan te maak nie weens die feit dat in die besondere omstandighede van die saak daar eenvoudig nie redelikerwys voldoende tyd is om dit te doen nie; of
•  die kliënt besluit vir redes van sy eie dat hy nie ‘n volledige ontleding van sy finansiële posisie verlang nie en verkies om slegs beperkte advies van die makelaar te kry.

Indien enige van bogemelde omstandighede ontstaan is dit uiters belangrik dat die makelaar die kliënt inlig dat:

• ‘n volledige ontleding nie gedoen kon word nie, en te verseker dat die kliënt verstaan dat daar in alle waarskynlikheid leemtes kan wees in die gepastheid van die advies wat hy van die makelaar ontvang het; en
• weens die aard van die advies wat hy ontvang het, hy beslis moet oorweeg of dit gepas is in die lig van sy finansiële posisie, doelwitte en enige spesifieke behoeftes.

Makelaars moet versigtig wees om nie elke sogenaamde “enkel-behoefte” saak outomaties te hanteer as ‘n geleentheid om slegs beperkte advies te gee nie. ‘n Kliënt se enkel behoefte mag steeds van ‘n adviseur verg om alle relevante inligting van die kliënt te moet bekom betreffende sy huidige finansiële posisie, ‘n behoorlike ontleding daarvan te doen en gepaste advies te verskaf. Tensy sodanige kliënt dus duidelik aandui dat hy nie volledige advies wil hê nie, is dit nie aanvaarbaar vir die makelaar om namens hom te besluit wat is gepas in die omstandighede nie. Dit volg ook dat indien ‘n makelaar self die oorsaak is dat hy nie in staat is om voldoende inligting in te win om ‘n ontleding te doen nie of nie genoeg tyd het om volledige advies te verskaf nie, hy nie in sulke omstandighede op die bepalinge van artikel 8(4) kan staatmaak as regverdiging om slegs beperkte advies te gee nie. 

Dit is moontlik dat nadat ‘n kliënt volledige advies ontvang het van ‘n makelaar, hy besluit om ‘n heeltemal ander transaksie aan te gaan as wat aanbeveel was, of om in elk geval nie die advies van die makelaar te volg nie.  In sulke gevalle is die makelaar verplig om die kliënt pertinent daarop te wys dat hy homself blootstel aan risiko wat betref sy finansiële posisie en dat hy in sy eie belang moet oorweeg of die produk waarop hy besluit het, wel sy behoeftes en doelwitte die beste sal bevredig. 

‘n Makelaar moet rekord hou van enige advies wat hy in ooreenstemming met die bepalinge van artikel 8(4) verskaf sodat hy indien vereis, gedokumenteerde bewys daarvan kan verskaf. Versuim om sodanige dokumentasie in stand te hou en afskrifte daarvan aan kliënte te verskaf, is ‘n oortreding van die bepalinge van die Algemene Gedragskode.

Quip for the Week:

Student: "Ek sou ook mank loop."

Differentiating between Advice and Factual Information

Brokers may be inclined to think that the meaning of “advice” is quite clear and does not necessitate even a second thought. Brokers after all earn their bread and butter providing advice to clients on a daily basis, and nobody should be better qualified than them to understand what that entails. In the normal course of business a broker will provide advice of a financial nature to clients verbally during face to face meetings or telephonically, but it will serve a good purpose to consider the definition of “advice” again. 

In terms of the FAIS Act “advice” is broadly defined as follows:

 “Advice” means any recommendation, guidance or proposal of a financial nature by any means or medium to any client or a group of clients in respect of the following: 

• the purchase of or investment in any financial product, or
• the conclusion of any other transaction, which includes a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in regard to any financial product, or
• on the variation of any term or condition applying to a financial product, the replacement of a product or on the termination of any purchase of or investment in any such product.

The definition further provides that regardless of whether a broker provides advice in the course of or incidental to financial planning in connection with a client’s affairs, or whether it results in any such purchase, investment, transaction, variation, replacement or termination or not, it will still be considered as “advice” for which the broker can be held accountable in terms of the provisions of FAIS.

On closer examination of the definition, the following elements thereof require attention:

Not only an express recommendation as normally makes up the advice that a broker gives to a client, but also any implied recommendation, guidance or even just a proposal of a financial nature, is seen as advice. It is not restricted to verbal or telephonic advice either.

This aspect was highlighted in the recent widely publicized determination of the FAIS Ombud in the case of Gumede vs. JDG Trading (Pty) Ltd. In this case the Ombud found in favour of the Claimant who had purchased a stove and television from the Respondent’s furniture store only to find later that she had also been sold financial products as part of the transaction. The Ombud came to the conclusion that these products, namely a credit life policy, goods insurance policy and an extended guarantee contract were not requested by the Claimant but that the Respondent had in fact initiated the sale thereof.

The Respondent’s response was that all sales personnel had been trained to refrain from providing any financial advice to customers and would only refer customers to available documentation about the financial products. The reasoning was that documentation that provided a description and benefits of a particular product, amount to factual information and that sales persons were only allowed to point to such documentation and not answer any direct questions. If a customer really insisted on having some aspects contained in the documentation clarified, he would be referred to a manager who is appropriately authorized to give advice in terms of FAIS.

The Ombud disagreed and considered it to be absurd and ludicrous to reason that if advice is given orally, it would fall within the FAIS definition of “advice” but the moment that same advice was put in writing and then merely pointed at, it becomes factual information. In the opinion of the Ombud one of the Respondent’s core businesses was the sale of financial products rather than furniture, and that it was impossible to conclude any such transaction by merely pointing out information without giving advice. In his view the Respondent’s action amounted to a written recommendation to the Complainant that she purchase its proposed financial products.

 In the light of the above the wide spectrum of businesses in different industries where financial products are marketed to customers, should take note of the fact that sales of such products normally cannot take place without advice-giving by whatever means or medium, and that sales persons directly involved with the transactions should meet the appropriate fit and proper requirements in terms of FAIS.

 This leaves us with the next question which will be discussed next month: when does your personal assistant give your client information, and when can it be construed as advice?

Hoe onderskei ek tussenAdvies en Inligting?

Makelaars kan verskoon word as hulle sou voel dat hulle nie opklaring nodig het oor die betekenis van die woord “advies” nie – dit is immers waarmee hulle hul daaglikse brood verdien, of dit nou mondelings van aangesig tot aangesig met ‘n kliënt of telefonies geskied. Tog mag dit dalk raadsaam wees om net weer na die definisie te kyk. 

In breë trekke omskryf die FAIS wet “advies” as volg: 

“Advies” behels die verskaffing van enige aanbeveling, leiding of voorstel van ‘n finansiële aard op enige wyse of deur middel van enige medium aan enige kliënt of groep kliënte ten opsigte van:

• die koop van, of belegging in, enige finansiële produk, of

• die afhandeling van enige transaksie, insluitende ‘n lening of sessie, wat daarop gerig is om ‘n verpligting aan te gaan of die verkryging van enige reg of voordeel in verband met enige finansiële produk, of
• die verandering van enige term of voorwaarde wanneer aansoek gedoen word vir ‘n finansiële produk, die vervanging van ‘n produk of die beëindiging van enige produk of belegging in so ‘n produk.

Die definisie voorsien verder dat, ongeag of ‘n makelaar advies lewer in die gewone loop van sake of aanvullend tot finansiële beplanning met betrekking tot ‘n kliënt se sake, en of sulke advies lewering inderdaad uitloop op ’n aankoop, belegging, transaksie, wysiging, vervanging of beëindiging aldan nie, dit nog steeds as advies beskou word waarvoor die makelaar verantwoordelik gehou kan word in terme van FAIS. 

By nadere ontleding van die definisie, moet daar aan die volgende elemente aandag gegee word:  Advies bestaan nie net uit die uitdruklike aanbevelings wat die makelaar aan die kliënt maak nie, maar ook enige geïmpliseerde aanbevelings, leiding of selfs ‘n voorstel van ‘n finansiële aard word ook gesien as advies.  Dit word ook nie net beperk tot mondelinge of telefoniese advies nie. 

Hierdie aspek is uitgelig in die onlangse wyd gepubliseerde uitspraak van Gumede vs JDG Trading (Pty) Ltd deur die FAIS Ombud. In die betrokke saak het die Ombud ten gunste van die Klaagster  bevind. Die Klaagster het ’n stoof en televisie van die Respondent se meubelwinkel gekoop net om later uit te vind dat daar ook finansiële produkte aan haar verkoop was as deel van die transaksie.  Die Ombud het tot die gevolgtrekking gekom dat die produkte, naamlik ’n Krediet lewenspolis, Goedere Versekeringspolis en Verlengde Waarborg kontrak nie deur die Klaagster versoek was nie maar dat die Respondent self die verkoop daarvan geïnisieer het. 

Die Respondent se verweer was dat al die verkoopspersoneel opgelei is om hulleself te weerhou van die gee van finansiële advies aan kliënte. Die verkoopspersoneel sal slegs die kliënte se aandag vestig op die dokumentasie oor die finansiële produkte wat beskikbaar is.  Die redenasie was dat die dokumentasie wat die beskrywing en voordele van ’n sekere produk bevat gesien word as feitelike inligting, en dat die verkoopspersoneel slegs toegelaat is om sulke dokumentasie uit te wys en geensins direkte vrae ten aansien daarvan te beantwoord nie.  Indien ’n kliënt wel sou aandring dat sekere aspekte bevat in die dokumentasie verduidelik word, sal die kliënt verwys word na ’n bestuurder wat behoorlik gemagtig is om advies te gee in terme van FAIS. 

Die Ombud het nie saamgestem nie en was van mening dat dit verregaande is om te redeneer dat solank advies mondelings gegee word, dit binne die definisie van advies val soos bepaal in FAIS, maar sodra dieselfde advies skriftelik is en net uitgewys word, dit dan slegs  feitelike inligting raak.  Die Ombud was van mening dat een van die Respondent se kern besighede eintlik die verkoop van finansiële produkte was eerder as die verkoop van meubels, en dat dit onmoontlik is om in sulke omstandighede ’n transaksie te sluit deur slegs die inligting uit te wys maar nie advies te gee nie.  Die Respondent se optrede het neergekom op  ’n geskrewe aanbeveling aan die Klaagster om sy finansiële produkte aan te skaf. 

In die lig van bogemelde moet die wye spektrum van besighede in verskillende industrieë wat finansiële produkte bemark, kennis neem dat die verkoop van sulke  produkte normaalweg nie kan plaasvind sonder die verskaf van enige advies op een of ander wyse of deur een of ander medium nie. Die verkoopspersoon wat direk betrokke is by sulke transaksies moet dan voldoen aan die ”fit and proper” vereistes in terme van FAIS. 

Dit laat ons dan met nog ‘n vraag – wanneer verskaf jou persoonlike assistant inligting, en wanneer advies, en hoe onderskei hy of sy die twee van mekaar? Volgende maand gaan ons bietjie dieper hierop in.