“Know your ombud” episode 7

In the latest episode of our Know Your Ombud series, I am joined by John Simpson, the Ombud for Financial Services Providers (FAIS Ombud). We chat about his office’s approach to handling disputes between financial advisers and consumers, highlighting both the rights of consumers and the responsibilities of advisers.

In the financial industry, poor advice can lead to significant financial losses. The FAIS Ombud is an important safeguard for South African consumers, ensuring that financial advisers meet their professional obligations.

“When consumers receive advice from registered financial professionals, they should be able to trust that the guidance is appropriate and in their best interest,” says Simpson.

When advisers fall short

Simpson highlights several case studies that demonstrate common failures in financial advice. In one example, owners of Toyota Hilux and Land Cruiser vehicles weren’t informed by their advisers about the critical requirement to install tracking devices in their vehicles. When these vehicles were later stolen, the insurers applied an additional excess.

“This is a fundamental failure of the adviser’s duty,” notes Simpson. “Advisers must highlight material terms and conditions, especially those that could result in claim rejections. Moreover, they should follow up to ensure clients have acted on crucial recommendations like installing tracking devices.”

Another case involved an Uber driver who was incorrectly advised to purchase business insurance rather than the required commercial insurance. This misadvice resulted in the rejection of a claim when the driver had an accident while transporting passengers.

“The distinction between business and commercial insurance is significant for rideshare drivers,” Simpson explains.

“A professional adviser should understand these nuances and provide accurate guidance. In this case, the adviser’s lack of knowledge led to serious financial consequences for the client.”

Perhaps the most financially damaging case involved a pension preservation fund. A woman was incorrectly informed by her adviser that withdrawing R500 000 from her pension fund wouldn’t incur taxes.

The reality was far different – she received R85 000 less than expected due to tax implications that the adviser failed to explain.

“Tax laws around pension withdrawals are complex, but this is fundamental knowledge for financial advisers,” says Simpson. “This case demonstrates how critical it is for advisers to understand tax implications when giving advice about retirement funds.”

When consumers must take responsibility

Not all complaints result in findings against advisers. Simpson points to forex trading platforms as an area where consumers often fail to exercise sufficient caution.

“Globally, up to 70% of retail clients lose money on forex trading platforms,” Simpson cautions.

“Many complaints in this space involve unregistered entities or scenarios where no formal advice was provided. In such cases, the consumer’s failure to conduct due diligence becomes the primary issue.”

Simpson emphasises that the FAIS Ombud can only assist in cases where registered financial advisers have provided inappropriate advice.

When consumers engage with unregistered platforms or make independent decisions without seeking professional advice, they largely forfeit regulatory protections.

The adviser’s professional duties

According to Simpson, quality financial advice requires advisers to:

• Thoroughly understand each client’s financial needs
• Recommend appropriate products that align with those needs
• Explicitly explain all material terms and conditions
• Follow up to ensure clients implement critical recommendations
• Provide accurate information, particularly regarding tax implications
• Properly document all advice given and the rationale behind it

“Financial advice isn’t simply about selling products,” Simpson stresses. “It’s about building appropriate financial solutions for each client’s unique circumstances and ensuring they understand exactly what they’re getting.”

The ombud’s approach to complaints

The FAIS Ombud has developed a structured approach to complaints handling. If a consumer hasn’t first approached the financial service provider, the ombud assists them in formulating their complaint and gives the provider six weeks to resolve the issue before further investigation.

“We take special care with vulnerable consumers,” Simpson notes. “The elderly, financially illiterate, or those who have lost significant assets receive expedited attention and additional support.”

Advice to consumers

Simpson offers straightforward guidance for consumers:

• Do some basic research before making financial decisions. A simple Google search can prevent many problems.
• Always ensure your adviser is registered with the Financial Sector Conduct Authority (FSCA).
• Be particularly cautious with forex trading platforms, potential Ponzi schemes, and other high-risk investments.
• Ask questions until you fully understand the financial product you’re considering.

In an environment where financial decisions can have profound long-term consequences, the FAIS Ombud provides a safety net for consumers.

However, Simpson’s message is clear: while consumers have strong protections through the ombud’s office, they also bear responsibility for verifying the legitimacy of financial service providers and understanding their own financial choices.

Contact details

If you feel let down by a financial service provider, you can contact the appropriate ombud scheme via the links below:

• Ombud for Financial Services Providers (FAIS Ombud): Disputes related to financial advice
• Office of the Pension Funds Adjudicator (OPFA): Disputes related to pension funds
• JSE Ombud: Disputes related to the JSE
• National Financial Ombud Scheme (NFO): Disputes related to banking, credit, and insurance

This podcast series was created in partnership with The Ombud Council.