What constitutes bad financial advice?
Maya Fisher-French, Fin24
Due to the recent poor performance of living annuities, City Press has been receiving complaints from investors who claim they received bad advice and want to cash in the investment.
This comes down to a question of good or bad advice, which is a Financial Advisory and Intermediary Services Act issue.
If you are unhappy with your investment, you need to contact your adviser and set up a meeting.
Your adviser is obliged to meet with you at least once a year to revise your investment and its objectives.
At this meeting, you can ask questions and understand why your product is not delivering on its objectives.
A City Press reader recently had his issues resolved simply by having a meeting and receiving a proper explanation of the investment and objectives. Open lines of communication are key.
If you are unhappy with the response, you can raise the issue with the company’s compliance officer or complaints centre.
If you are still unhappy and believe you received bad advice, you can raise the complaint with the financial advisory ombud.
Before you do this, you need to find out if the adviser followed due process.
You must also determine whether you are just unhappy with the market performance, or if you really were given bad advice and invested in a product that was not sufficiently explained to you by the adviser.
This information would be contained in the record of advice.
Wouter Fourie, an independent financial planner and the director of the Financial Planning Institute of SA, says a financial services provider must maintain a record of the advice that was furnished to the client, and must provide this information when requested.
“These records must reflect the basis on which the advice was given,” says Fourie.
This would include a summary of the information and material on which the advice was based, as well as the financial products that were considered.
The adviser must also state why specific products were selected, and how they meet the client’s needs and objectives. The summary should also contain information on all fees and costs.
In a case where the adviser is recommending that the client switch to a different product, a comparison of fees between the terminated product and the replacement product must be provided.
This should include charges, special terms and conditions, exclusions of liabilities, waiting periods, loadings, penalties, excess, restrictions, exclusions or circumstances in which benefits will not be provided.
Fourie says the records must also explain why the replacement product is more suitable to the client’s needs.
“A provider must give the client a copy of the record contemplated in writing,” says Fourie.
If the financial advisory ombud finds the adviser did not follow due process or provided bad investment advice, a penalty could be awarded to the client.
However, you cannot reverse an investment in a life policy such as a living annuity or life annuity.
If you are unhappy with your investment, you can move to another financial adviser, change the portfolio of the underlying investment or switch to a guaranteed annuity.
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Published in Fin24, 3 September 2017