daniel chigunwe
Ombud for Financial Services (Fais) John Simpson has advised consumers not to trust their financial advisors “absolutely”.
“That is not how it should work,” he said in a webinar this week that focused on the Ombud Council Rules for the Fais Ombud that were effective from 1 July this year.
Simpson admitted this is a strange thing to say but indicated that consumers should consider the advice of their financial service providers (FSPs) or financial advisors in much the same way they consider the advice of a used car salesman when buying a car.
“You are going to look at the car, you are going to evaluate it and test drive it.
“You are not going to trust what the [sales] person tells you.
“You (consumers) must take the same approach with investment and insurance products,” he said.
Educate yourself
Simpson said some investment and insurance products can be complicated, but consumers must try to find out some basic information about them, such as what they do, how they work, and who they are appropriate for.
“That you can certainly find out without having to understand the product in detail so when the advisor wants to sell you this product or recommend it, you at least have basic knowledge of what this product does and how it works.
“We want consumers to be more aware, more involved in what they are buying and what they are paying for.
“That sort of thing, to us, is invaluable and extremely important,” he said.
Simpson added that the financial services industry can be regulated and additional measures can be introduced but stressed that “consumers can offer the best protection for themselves by getting information on their own and being more informed”.
He said this would assist consumers by avoiding a dispute and a complaint “better than any regulations that one introduces or compliance measures that one introduces”.
“The consumer is the ‘best prevention method’ for disputes and problems.
“The Internet is a massive resource. You can check just about anything and get more information on just about anything – investments, short-term insurance, long-term insurance, (and) what sort of questions you should ask your financial advisor.
“If you are forewarned with knowledge . . . you know the right questions to ask your financial services provider and your advisor to avoid a problem from occurring.
“That is a far better scenario than going through the whole process and then a problem occurs and now you try and sort it out,” he said.
Ombud Council rules changes
Leanne Jackson, chief ombud of the Ombud Council, said the main change to the Ombud Council rules for the Fais Ombud was the increase of the maximum compensation the Fais Ombud may award for financial prejudice or damage from the previous maximum of R800 000 to R3,5 million.
Jackson said this brought the maximum award that the Fais Ombud could make more in line with other schemes and economic reality.
Simpson added there were a lot of aspects in the old rules that did not make any practical sense and were removed.
He said the old rules, for example, contained a provision that the Fais Ombud could charge case fees to a respondent if they received a complaint.
However, Simpson said that claiming and collecting those fees was enormously difficult in practice and did not make practical sense in light of the levy system.
Simpson said another important aspect was that the Fais Ombud would investigate cases against unregistered FSPs, which could be total scams.
If a person fell victim to a scam on Facebook, the Office of the Fais Ombud accepted the complaint and tried to get information from the respondent.
However, Simpson said invariably in 99 percent of the cases, the respondent would not respond and his office was unable to get hold of them, with the phone number not connecting and the email address not even existing “so it was purely a scam from beginning to end”.
Simpson said there was nothing his office could do, but these cases clogged up the system.
“Unfortunately it created a perception in the complainant’s mind that we can actually do something, which in reality we really couldn’t.
“Ultimately, the system, and the way it’s set up in the financial sphere, is that people should only deal with registered FSPs and check that they are registered before they get services from them.
“If there is a problem or dispute, then we can assist and look into the matter because it’s a regulated entity,” he said.
Simpson added that a big change to the Fais Ombud’s processes enabled it to weed out those cases and refer them to the Financial Sector Conduct Authority (FSCA).
He said the FSCA regularly publishes warnings to consumers not to deal with these entities because they are unregistered.
“Always check whether they [FSPs] are registered. Try not to fall for the scams where promises are made of huge returns. As soon as you get an advert like that, it’s highly improbable,” he said.
Progress in managing cases
Simpson said the Office of the Fais Ombud had a number of challenges “to put it mildly” when he joined, but has made massive progress since November 2022.
He said when he started as Fais Ombud, the office had more than 1 500 cases that had been sitting in its systems for 10 to 12 years that had not been successfully resolved, which was “quite embarrassing”.
Simpson said these cases were resolved and closed, and others settled.
Many of these cases related to property syndication complaints, which were closed in 2023 without the Fais Ombud adjudicating them, and the complainants advised that their complaints would be more appropriately dealt with by a court.
Simpson said the office now has “a tiny fraction” of cases older than nine months, and the oldest case is probably a year and one month.
He said the aim is to close a case and send out an assessment on it within 30 days if there is no prospect of an award and nothing can be done to assist with it because, for instance, it is prescribed or the respondents or FSP have not done anything wrong.
Increase in cases resolved in favour of consumers
Simpson added that the number of cases resolved in favour of the complainants or consumers by the Fais Ombud has increased from 29 percent to 35 percent, which is in line with the industry average for ombudsman cases.
Jackson said the ombud system matters because:
It helps many financial customers, supporting consumer confidence in financial services, with more than 40 000 formal complaints handled and about R450,99 million returned to customers across all schemes in 2023/24;
It resolves complaints flexibly, with minimum formality, with no lawyers required and for free;
It enhances financial inclusion for vulnerable and disadvantaged customers;
Of an automatic “add-on” advantage of using licenced financial institutions and providers;
Equity-based jurisdiction gives substance to the Treating Customers Fairly framework;
It enables proactive identification of emerging conduct risks through complaint data and trends; and
Information sharing with regulators enables risk-based supervision and evidence-based regulatory responses. — Wires
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