Picture: iSTOCK
Picture: iSTOCK

Financial institutions must disclose all material conditions tied to products they sell to you, cases shared by the financial ombud last week demonstrate.

Former financial services ombud Noluntu Bam found that a woman was improperly advised when she transferred her retirement savings to a preservation fund after taking one third as a withdrawal, as she then emigrated and wanted access to more of her savings before reaching retirement age, but preservation fund rules prevented her from doing so. 

According to the rules of a preservation fund, a retirement fund in terms of the Pension Funds Act, you can make one partial or full withdrawal from the fund.

In this particular instance, however, the ombud convinced the company to pay the woman a settlement because its representative knew the woman would need access to the money before retirement, but sold her the product anyway.  So, the company did not give the complainant all the info as required by the Financial Advisory and Intermediary Services (FAIS) Act before the product was sold.

Tax implications

Another theme that emerged from cases highlighted in the ombud’s annual report released on Friday, November 2, was the obligation on financial services providers (FSPs) to disclose not only all terms and conditions related to a product, but also all tax implications of transactions.

Bam highlighted a case where a retired man requested that his FSP move his savings to lower-risk funds. He asked that all fees and costs be disclosed. After he was satisfied with the information, he gave the go-ahead, only to be surprised with a R300,000 tax bill from the South African Revenue Service (Sars). This was for capital gains tax and penalties attracted by the transaction.

Unable to foot the bill, the man, referred to as Mr Shaw, sold immovable property — a transaction that also attracted capital gains tax.

Bam found that the tax implications of the transactions were not discussed at all by the FSP when it offered its solutions. This, according to Bam, was a failure on the company’s part to treat Mr Shaw fairly. The outcome was an offer to settle which he duly he accepted, after much stress and resentment.

Keep a record of correspondence – it might just save you from rejected insurance claims

In January 2017, a family in Knysna requested that their insurance broker specify household items on their policy. These included a television cabinet, carport and lawnmower, among others, to the value of R165,000.

Six months later the family’s house was gutted by the Knysna fires. On claiming, they were informed that the items had not been listed and therefore would not be covered.

The ombud, furnished with enough documentation to prove that the broker was notified timeously of the need to provide cover for the additional items on the policy, asked the broker to provide cogent reasons as to why the matter had not been resolved.

The family was paid out the full R165,000.

Short-term insurers

The ombud revealed that most complaints are, once again, directed at short-term insurers, with 3,243 complaints. This was followed by long-term insurance complaints (3,100), and investments, with 1,231 unhappy consumers.

All FSPs have an obligation to look at your personal circumstances, and only recommend products that are appropriate to them. In addition, they have to make sure you understand all the terms and conditions, as well as the financial and tax implications of transactions.

If you feel that you have been treated unfairly or incorrectly, and would like to lodge a complaint with the ombud, visit www.faisombud.co.za  to download a complaint form. The service is free.​