Ignore the provisions of the law at your peril.
Hanna Barry | 9 November 2015 00:01, Moneyweb
The FSB is not afraid to fine.
JOHANNESBURG – Insurance brokers must ensure that their business practices are strictly aligned with the law lest they face a hefty fine from the Financial Services Board (FSB), 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.
He treated the drivers as single-need clients, viewing them as though a group scheme, when in terms of the Financial Advisory and Intermediary Services (FAIS) Act, he should have treated these drivers as individuals. A financial needs analysis on each driver should have been performed to ensure that there were no other financial needs to be considered.
“In my eyes they were all doing the same thing. I looked at it as a group scheme, but legally it wasn’t,” the broker tells Moneyweb.
Although the drivers worked for the same company, at the time when the policies were taken out they had in fact each set up their own CC with the help of the business consultant and were no longer jointly employed by the company.
In other words, the advice process was flawed but not necessarily the advice itself.
“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 Advocate Matome Thulare, head of the FSB’s FAIS enforcement department.
The FSB instituted Regulatory Exams some years ago for this reason. All brokers and financial advisers, regardless of how long they had been in the business, had to pass these exams in order 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, who has had his own business for 25 years, notes.
“R150 000 is a lot of money. To a degree, this matter leaves me fearful of again unwittingly erring on some legal interpretation,” he adds.
“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 highlights.
“In arriving at an amount of R150 000, the Registrar took into account that the contravention was as a result of a misunderstanding on the part of the broker’s compliance officer with regards to the application of the relevant legislation,” the FSB said in a statement.
“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,” adds Thulare, referring to the business consultant who procured the broker’s services.
If the broker had placed the business consultant under his licence, she would’ve been authorised to assist him as an agent, Thulare explains.
“Generally we want people to appreciate that these laws must be observed. It can’t just be a matter of ‘I didn’t know’,” he maintains.
Where there has been gross misconduct, the FSB will not offer an adviser a second chance and will have him debarred from the industry, he says.