Where does the obligation begin and end for the advisor and or the brokerage, about matters pertaining to the confidentiality of a client’s information and investment portfolios?
The FAIS Act (Financial Advisory and Intermediary Services) Act outlines the process and offers guidelines as to what is expected.
Financial services providers and their representatives should:
- Act honestly and fairly, and with due skill, care, and diligence (i.e. legal carefulness), in the interests of clients and the integrity of the financial services industry;
- They have to act with caution and treat clients fairly in a situation of conflicting interests;
- A provider may not disclose any confidential information acquired or obtained from a client or a product supplier in regard to such client or supplier, unless:
- Written consent of the client or product supplier has been obtained beforehand; or
- Disclosure of the information is required in the public interest or under any law.
Using this framework as the basis for our consultations, we had an interesting and unusual request from the ex-husband of one of our clients.
The telephone conversation went something like this:
Mr A called and introduced himself as the ex-husband of Mrs B.
Mrs B has had a nervous breakdown and is undergoing some intense medical treatment and was (in his opinion) unable to make any decisions and he has kindly stepped in to assist as she has no family left in SA. Mrs B is allegedly seriously ill and does not have any substantial life expectancy.
They have three children, all of whom have emigrated to fairer climes. Mrs B is a septuagenarian and has a mixed portfolio including some offshore investments. Her current liabilities are funded from her offshore portfolio. We were unable to make contact with Mrs B to verify her condition.
Mr A would like us to do the following:
Change the source of income from the offshore investment to the local unit trust she has. The underlying process is that when she passes, the offshore funds would be greater in value and the children would benefit from this as they are the heirs.
At the outset, we explained to Mr A that we have no documentation on file which provides any form of Power Of Attorney and as such we may not disclose any information regarding her investments. He agreed with our information but did have prior correspondence between Mrs A and the various companies she is invested in which gave some insight into what her investments were and the structure of them.
We did agree to offer advice as to what the processes are and what the limitations of the various options may be. As an example, a general POA (Power Of Attorney) is only valid on behalf of an individual if they are still mentally able, but physically disabled.
Conversely, if they are mentally incapacitated and physically capable, the POA would only be binding if the custodians were appointed by the courts. In this example, we advised that we cannot recognise any subsequent POA based on what had been disclosed to us earlier regarding Mrs B’s mental agility as disclosed by Mr A based on his opinion and not necessarily based on medical facts and therefore would not be able to assist. We discussed the issue of our intent to place Mrs B’s financial well being as our only priority in this case and we would therefore be unable to consider any requests made on her behalf.
Mr A then threatened to approach the investment houses directly with the intention of changing the appointed advisors. We advised he was free to do so, but when we are notified of any impending change of broker, we are obliged to advise the investment house of her mental state and suggest that this move may not be in her best interests, particularly as there is no court-appointed custodian and the underlying reason is for the children to receive a greater inheritance. My question was what the material benefit to Mrs B is, considering her current medical condition.
In closing our stance was the following:
- Mrs B’s requirements were our first and only priority;
- Mr A had no legal documentation to make any changes and we advised him of this;
- Any subsequent “changes” that may come through would be challenged based on the medical condition Mrs B was in unless underpinned by a court-appointed custodian or order;
- No information was exchanged despite threats of legal action; and
- The status quo with Mrs B remains intact.
The rules and regulations surrounding the financial industry are very tight and as representatives, our clients’ confidentiality is the top priority.
Remember, if clients would like a third party to obtain information from a financial institution regarding their affairs, the client would need to provide the institution with the appropriate consent.