Financial institutions are obliged to sell appropriate products

Former ombud for financial advice Noluntu Bam.
Former ombud for financial advice Noluntu Bam.

Financial institutions have an obligation to sell you products that are suitable to your needs, a case highlighted by the financial advice ombud shows.

Noluntu Bam, the former long-serving ombud for financial advisory and intermediary services, found that advice given to an unemployed woman who was the sole provider for her family to invest money in a policy with restrictions on when she could access the money, was inappropriate.

The case forms part of a list of case studies the ombud's office published in its recently released 2017/18 annual report.

Bam's intervention resulted in the life assurance company that sold the woman the endowment policy paying out R70000, after it initially wanted her to wait for two years.

The woman, who was entirely dependent on her Sassa social grant, had received R200000 when her husband died. She was advised to it in an endowment policy that had a five-year investment term in 2014, and while you can withdraw a portion of your investment, there are heavy penalties for attempting to withdraw the full amount.

Three months later she withdrew R100 000 to pay for her two daughters' tertiary education.

Insurer’s unfair play

Funeral insurers must treat you fairly, even if the fine print disqualifies your claim.

A funeral insurer declined to pay out when a woman claimed on two policies after her niece was killed in a house robbery. The insurer said the niece had died during the waiting period – a period where the policy only pays for accidental deaths.

The insurer said murder was not accidental. The Ombud argued that the essence of a waiting period was to prevent the life assured or the beneficiaries of the policy from benefiting unfairly and that murder, while not specifically accidental, was unnatural.

The Ombud said the aunt, as the beneficiary of the policy, cannot be seen to have benefited unfairly from the policy. She was paid out R80 000.

In September last year, she applied for the remaining R100 000. She was told she could only access R78 000 at the end of a five-year term - in 2019, blocking all access to the money for another two years.

In her response, Bam argued that a policy restricting access to the funds invested was not appropriate to the needs and circumstances of the unemployed woman because she was dependent on a state pension that was not sufficient to pay her daughters' tertiary education fees.

In the report, Bam notes: "It was evident that the woman's representative had not considered all relevant information."

In a similar case in 2014, an unemployed woman was advised to invest the proceeds from the sale of her house into an endowment policy.

Two years later, she requested withdrawal of the full amount.

This was declined, and she was given the option to withdraw R50 000 and the remainder of the money would only be available in 2020.

The life assurer showed the ombud signed documentation, which included the terms and conditions of the policy.

Bam found that despite the signed documents, "the product was not appropriate" and the life assurer had not "considered the [woman's] personal circumstances". The assurer paid the woman R150 000.

All financial institutions have an obligation to look at the personal circumstances of every client, and only recommend products that are appropriate to these circumstances.

If you feel you have been treated unfairly and would like to lodge a complaint with the ombud, visit the website www.faisombud.co.za

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