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Consumer Affairs
Thursday, December 1, 2005
Double dealing

The Ombud for Financial Services Providers has ruled twice in one day against Standard Bank in two carbon copy cases of misrepresentation where customers who had specifically requested traditional bank products were instead deliberately locked into long-term commission-yielding investments.

In making the double determination against the bank, Charles Pillai, the FAIS Ombud, was critical of the fact that in both cases, the bank’s financial service providers appeared intent on selling investment products, which paid them commission without paying heed to the customers’ requirements.
Both complainants had approached the bank with a view to secure their capital on a short-term basis on the money market in order to be able to withdraw the funds speedily to buy property. In both cases the customers’ wishes were ignored. Instead, their money was channelled into medium to long-term speculation portfolios.
Mr Pillai ruled that in both instances there had been non-compliance with the FAIS Act. The service providers had failed to abide by the Code in section 8 of the Act, whereby a supplier prior to providing a client with advice must:
• Seek from the client information regarding his financial situation, financial product experience and objectives;
• conduct an analysis based on the information obtained; and
• identify the financial product or products that would be appropriate to the client’s risk profile and financial needs.

One complainant, Jennifer Patricia Malan, 61, of Johannesburg, alleged that Louis Pfeiffer of Standard Bank Epson Down branch had misrepresented a financial product to her by investing her R1-million in unit trusts without her knowledge.
She said that during March 2005, she and her retired husband had sold their family home for the sum of R1-million.
In consultation with Pfeiffer, Malan said she explained to him that she wanted to place the R1-million in a money market account. She explained her need to have access to the money on short notice in order to acquire a smaller property where she and her husband could spend their retirement years.
Malan was advised by Pfeiffer that he could provide her with a new product, “a special managed account”, that would suit her requirements and with a higher return than that of the money market account. She asked Pfeiffer whether there were any risks involved and Pfeiffer’s reply was “only if the bank collapsed”.
The following day, 16 March 2005, whilst busy with internet banking, Malan discovered that R1-million had been withdrawn from her cheque account.
She immediately tried to contact Pfeiffer. She was unable to make contact with him, as he was apparently away on holiday. She was informed by the bank’s Customer Services Department that the funds had been invested into the Stanlib Managed Flexible Fund.
Attempts by her son and husband to cancel the unit trust investment and restore the original investment amount were futile.
The bank instead sent her a repurchase form. The repurchase amount of R976 197.14 was paid into Malan’s bank account. Malan subsequently complained to the Ombud.
In his determination the Ombud said: “It appears as if the Respondent’s primary focus was to earn commission rather than addressing the needs of the Complainant. It is obvious that no commission would have been earned had the funds been invested in a money market account. The Respondent earned R6 400 in commission in 10 minutes, which paints a lucrative picture for future financial advisors.
“This explains why certain advisors would rather opt to do scrappy work and not pay attention to detail.” 
Another complainant, Rukshana Ramdass of Durban, said she had been misled by Kresan Maistry, an employee of Standard Bank Chatsworth branch, who had falsely advised her to purchase the financial product, namely the Excelsior Endowment, without taking into account her needs. She further alleged that Maistry had misrepresented the financial product to her.
She said in November 2004, she had gone to the bank to invest R87 000 on the money market. This amount was from the sale of her property, which she intended to hold until such time as she had found another property.
She was advised by Maistry to invest her money in Liberty Life. She stressed she would require the capital amount at short notice and was told the money would be readily available to purchase another property.
Ramdass said in February 2005 she went to the bank “to put notice on the funds” as she had found a suitable property. She was informed she could only obtain a loan of R70 000 as the money had been invested for five years.
She was forced to sell her vehicle and take loans from her relatives in order to make up the funds for the purchase of the property. She then complained to the Ombud.
When asked to respond by the Ombud, the bank in both cases said it could not find any wrong-doing on its part and that it was, therefore, unable to compensate the complainants for any losses.
After investigating the complaints, the Ombud ruled Standard Bank had failed to follow the correct and appropriate procedures as prescribed by the FAIS Act and ordered the bank in both cases to reinstate the complainants to their original financial condition with interest.

Copyright © Insurance Times and Investments® Vol:18.6 1st December, 2005
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