The Office of the Ombud for Financial Services Providers (Fais) is still struggling with a backlog of 1 378 cases related to property syndication schemes.
A lot of these complaints have been on its books for several years, as it faced legal challenges about its jurisdiction and had to suspend complaints about property syndication matters at one stage.
The Fais Ombud received a record number of new complaints in the year through March 2017, with total complaints rising by almost 10% to 10 846. The 2016/17 financial year marks the first time the office received in excess of 10 000 complaints. Of these, 5 630 fell within its ambit, compared to 4 263 the year before, a rise of 32%.
The backlog of property syndication matters relates to complaints it previously received and is not included in the 2016/17 numbers.
The property syndication matters were one of the challenges the office faced during the past financial year, team resolution manager Marc Alves told Moneyweb on Friday.
He did not want to be drawn on the number of cases that specifically related to the failed Sharemax property syndication scheme.
Asked how long it took to resolve a property syndication matter, Alves said the matters had been delayed over the years because of legal challenges on whether it had jurisdiction, which had resulted in a backlog.
“It is hard to put a timeframe on it. It is just because of all these delays that we’ve had to go through that these specifically have been held up that long. Otherwise they would have moved [through the system] like any other complaints and [would have been] assessed, evaluated and determined just like any other complaints.”
According to the Fais Ombud, Noluntu Bam’s annual report, her office faced its “fair share of challenges” over the past financial year.
Apart from the property syndication matters, the main challenges were the increasing number of complaints it received and the complexity of the complaints, Alves said. The office received a lot more complaints related to investments and retirement planning which put strain on its capacity.
Alves attributed the sharp rise in the number of complaints to a greater awareness about the existence of their office and the service it provided.
The majority of complaints related to short-term insurance.
“Despite the importance that short-term insurance plays in an individual’s financial planning, financial service providers (FSPs) who operate in the short-term insurance space still violate provisions of the Fais Act and the Code,” Bam wrote.
Alves said short-term insurance was often still sold based on the premium rather than appropriateness.
“Because of that there appears to be this – for want of a better word – reckless replacement of policies. Policies are replaced because they are cheaper than another product and not because maybe they are more appropriate than another product.”
In a lot of cases, there was also a failure to gather relevant and available information from clients to ensure that the policy was appropriate for the clients’ needs and not just the cheapest. In certain instances, there was also a failure to maintain an adequate form of recordkeeping, he added.
While some commentators have warned that decisions by the Ombud’s office and the Appeal Board could result in financial advisors defaulting to conservative portfolios for investors that are over the age of 55, Alves said all financial planning recommendations related to retirement had to be made after the FSP had obtained all relevant and available information to ensure the client could make an informed decision and that the recommendation was appropriate to the person’s specific needs.
“Merely defaulting to a conservative portfolio because an FSP is afraid of a complaint being laid with this office – is that serving the interest of the client or the interest of the FSP? I mean it must be borne in mind that should the advice have been appropriate and the client was placed in a position to make an informed decision, this office is unable to investigate complaints that refer solely to investment performance.”