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Consumer Affairs
Thursday, January 1, 2009
Check the paperwork

Markets are volatile, and some consumers are counting the cost of rash investment decisions made in happier times. There have been several reports recently of people losing money as a result of investing in schemes guaranteeing astronomical returns. Advisers who told them they were accredited to sell such “products” on behalf of legitimate financial services providers have deliberately misled some of them.

“When something seems to be too good to be true it very often is just that: too good to be true. It is prudent to stick to the products of legitimate financial services providers that have a proven track record and investment expertise,” says Ralph Mupita, MD of Retail Affluent at Old Mutual.
“We strongly advise consumers to work with financial advisers who are authorised to sit with you and give you personalised advice on products for which they are accredited in terms of the new Financial Advisory and Intermediary Service legislation (FAIS),” he adds.
Advisers are representatives that render financial services on behalf of financial services providers to consumers. A financial services provider offers an advisory service and employs representatives to advise customers o­n financial products that the representative is qualified to advise on, This process may or may not result in a transaction.
According to FAIS, advisers are obliged to disclose to their customers whether they are acting for an authorised Financial Services Provider, and which products they are accredited to provide advice on.
Once financial advisers have completed their training they are accredited to advise on specific products. It is a legal requirement of FAIS that they must be able to produce a document setting out the products they have been accredited to sell.
Mupita emphasises that consumers need to be aware of the questions to ask advisers in order to protect themselves from dodgy investments.
“If advisers fail to provide you with proof of the list of products on which they are accredited to give advice, then you should be on your guard about investing in any scheme or product they put before you,” he warns.
If an adviser cannot prove that he or she is accredited to sell a product, it is strongly advised not to sign any paperwork, but to contact the service provider employing the adviser to report the incident.
Representatives must do the following according to FAIS before rendering advice:
1. Collate information regarding the customer’s financial situation, objectives and experience with financial products;
2. Conduct an analysis;
3. Identify financial products that will address the customer’s risk profile and financial needs;
4. Where a financial product is to replace the customer’s existing product, the adviser is required to disclose the financial implications, fees and charges of the new product and any penalties applicable to the terminated product. Tax implications, and, in the case of insurance products, the impact of age and health affecting premiums, must also be considered. This is required to protect the customer against potential churning. Churning happens when an adviser trades excessively in a customer’s account to maximise commission earned that does not put the customer’s interests first.

A financial services provider must provide the adviser, who in turn must provide the customer, with adequate information about the financial services provider.
The information must be confirmed within 30 days in writing to the customer. The financial services provider must provide its name; physical location, postal and telephone contact details and provide details of its contractual relationship with the adviser. Any conditions or restrictions o­n the adviser’s contract must be disclosed. Contact details of the compliance officer and complaints departments need to be provided.  The adviser must detail the commission earned o­n the product that the customer wants to acquire. Commission may be negotiated.
When a customer lodges a complaint against an adviser with the financial services provider, the customer must be informed of the following process:
1. The complaint  must be in writing;
2. The provider must investigate the complaint and respond promptly following the investigation;
3. The provider should handle the complaint in a timely and fair manner;
4. The provider will keep the complaint on record for at least five years;
5. If the customer is not satisfied with the provider’s response, the provider must advise the customer on further redress that may be available from independent sources such as the FAIS Ombud.

Copyright © Insurance Times and Investments® Vol:22.1 1st January, 2009
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