Dissect some of South Africa’s most controversial investment schemes and you will come across groups of pensioners who invested after they were lured with empty promises of great returns.
In light of the country’s poor savings culture and socio-economic challenges, only about one in 10 people are in a position to maintain their standard of living in retirement. Desperate to supplement a meagre savings pot, it is not difficult to see why many retirees become victims of too-good-to-be-true money-making schemes.
But financial abuse is not limited to having your money pilfered. It can also involve fraud or pressure to part with money or other assets, or having these misused by a loved one or acquaintance.
Melani Winkler, assistant ombud for Financial Services Providers (FAIS), says the elderly are definitely easier targets for financial abuse. They sometimes have a limited understanding of the financial industry or there may be a lack of access to information.
“This, together with the urgent situation caused by a lack of adequate financial planning, means that the elderly are more prone [to] fraudulent schemes and having their money stolen in an attempt to rectify the situation.”
One example is funeral societies. These schemes are often marketed in remote areas, and a lot of them aren’t registered in terms of the relevant laws. Pensioners end up paying premiums thinking they have covered themselves and their families, only to find themselves out of pocket when they claim or suddenly subjected to exclusions they weren’t aware of.
The world and the financial services industry are rapidly evolving, says Johannes Burger, independent financial advisor at Obin Wealth Management. The pace of change tends to be overwhelming for the elderly and may increase their vulnerability.
“Advances in technology and the exponential rise in product choice get them flustered more than the youth, who seem to be more adaptable to change,” he adds. “Consequently, they are prone to make the wrong decisions, or even worse – to not make any decisions.”
Although statistics from the Ombud for Banking Services show that only about 10% of complaints come from consumers over the age of 65, ombud Reana Steyn says a number of factors make elderly people soft targets, including technological advances. People are sometimes unable to grasp how it is possible for certain acts of fraud to be committed.
The physical and mental impairments of ageing may also make the elderly dependent on others for care, which may allow abusers to isolate and control them physically, emotionally and financially, she adds. Where people are in need of care and assistance, they are forced to place their trust in others.
In the context of bank accounts, some signs of financial abuse include unusual activity in someone’s account, strange signatures on bank slips, pressure by family members or acquaintances to be given signing rights or power of attorney, even if the older person is capable of managing their own affairs, and the disposal of household effects without the pensioner’s consent.
While regulation provides some protection with regard to financial products, it is not always effective, particularly as a preventative measure.
Winkler says the legislation that is in place, such as the Financial Advisory and Intermediary Services (FAIS) Act, the Code of Conduct and the Policy Holder Protection Rules (which incorporates the principles of Treating Customers Fairly) are there to protect all consumers, not only the elderly.
“The challenge however is to make the elderly aware that they are protected by law, what they can complain about, and how to reach out to the correct entities to complain when it becomes necessary,” she says. “To this extent, the introduction of a Chief Ombud [effective October 1, 2018] by the Financial Sector Regulation Act will play an important role to direct all complainants in the right direction.”
A lesser-known piece of legislation is the Older Persons Act, which was drafted by the Department of Social Development. It is aimed at protecting and promoting the rights, wellbeing and security of older people, and to combat abuse, including financial abuse.
But Steyn says it is not clear to what extent the act is enforced.
“We have not had any complaints directly involving this legislation.”
Ultimately, consumer education remains the most important tool to ensure that consumers are aware of their rights. Individuals have to be educated to take ownership of their finances from a young age, Winkler says. “This will reduce the need to make desperate decisions based on a lack of options.”
This duty falls on the entire financial services industry, and much more can be done in this regard, she adds.
Burger says South Africa needs more competent, qualified and reliable financial advisors.
“Money is a funny thing,” he says. “If you manage it properly, you do well. If it controls you, you have a problem. Those who cannot control and manage money properly should not be financial advisors.”
Where money controls financial planning professionals, it leads to inappropriate advice and financial loss, he adds.
“The regulation of the financial services industry has done a great job so far in creating rules and codes of conduct within which advisors have to operate. Unfortunately, one still hears of financial advisors causing harm through inappropriate advice. Are these individuals suitably punished for the harm they case? I believe not.”
But what are the best ways of protecting your financial assets, particularly considering that there may come a time when you might not be in a position to manage them yourself as a result of illnesses such as dementia or Alzheimer’s?
In South Africa, a trust has always been proposed as a useful vehicle for moving assets timeously to ensure they are protected against exploitation, says Ronel Williams, fiduciary specialist at Nedbank Private Wealth.
South African law does not recognise enduring powers of attorney, which means a power of attorney given to someone falls away when the person who gave it becomes incapacitated.
“A trust would be ideal in such a scenario as the incapacity of a beneficiary will have no impact on the ongoing administration of the trust,” Williams says.
However, the trustees should be reliable individuals or companies who administer the trust according to the terms of the trust deed and for the benefit of the beneficiary.
The introduction of anti-avoidance legislation (Section 7C of the Income Tax Act) has brought another angle to this advice as the funding of the trust now has tax consequences that it did not previously have, Williams says.
“I do however believe that the benefits of a trust for scenarios such as these still outweigh the tax consequences.”