Money advisers feeling the heat

Insurance brokers must ensure their business practices are strictly aligned with the law lest they face a hefty fine from the Financial Services Board (FSB), as an experienced KwaZulu-Natal broker recently learned the hard way. The broker took instructions from a business consultant – who was not an authorised financial services provider – to supply life and disability policies to 24 truck drivers rendering services to the same company.

Client comes first

He treated the drivers as single-need clients when, in terms of the Financial Advisory and Intermediary Services (FAIS) Act, he should have treated the drivers as individuals, giving each a financial-needs analysis. The drivers had each set up a CC with the help of the business consultant and were no longer jointly employed. In other words, the advice process was flawed but not necessarily the advice itself.

The broker kept records of advice, but the advice recorded was never given to the clients. “By virtue of that alone he should’ve known he was in breach of the FAIS Code of Conduct,” says Caroline da Silva, deputy executive officer of FAIS at the FSB.

“Brokers don’t seem to familiarise themselves with the law. They tend to follow practice and not ensure that what they are doing indeed reconciles with the provisions of the law,” says Matome Thulare, head of the FSB’s FAIS enforcement department. The FSB instituted regulatory exams some years ago for this reason. All brokers and advisers had to pass to continue practicing.

“None of the clients have lodged a complaint or been dissatisfied with the FSB-approved financial product underwritten by Liberty Life; it was a matter of the FSB not being happy with the advice process, but happy with the advice – an expensive lesson for me,” the broker notes.

“R150 000 is a lot of money.To a degree, this matter leaves me fearful of again unwittingly erring on some legal interpretation.

“The penalty represents the amount of commission earned by the broker off the policies and does not include a further penalty. It is just a removal of the profit. We have accepted that there was no malintent,” Thulare says.

“If you deal with a person who is interfacing with clients, whether it constitutes advice or intermediary services, and that person is not authorised, I think you have dropped the ball,” he says.

Ignorance no excuse

If the broker had placed the business consultant under his licence, she would’ve been authorised to assist him as an agent, Thulare says. Where there has been gross misconduct, the FSB will not offer an adviser a second chance and will have him debarred, he says.