Ombud finds Broker chased commission by extending maturity date
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2009
Tue
13
Oct
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Pretoria: When a Cape Town man was retrenched, he tried to consolidate all his insurance premiums and was shocked to find his broker had ignored instructions and had replaced an existing endowment policy due to mature in 2011 with one that would mature only in 15 years’ time.
Cornelius J de Vries complained to the Ombud for Financial Services Providers that although he had paid R6 000 in premiums, the cash value was only R1 606 after deduction of the commission paid to the respondent Jan Adriaan Louw, plus other costs.
He said he was paid out a surrender value of R1 056 and, therefore, claimed the difference of R4 944 plus interest from the respondent.
This week FAIS Ombud Charles Pillai ordered Louw to pay De Vries R4 994 plus interest of 15.5 per cent per annum.
In his ruling the Ombud said a 15-year term meant a much larger upfront commission for the respondent. The probabilities, therefore, favoured the view that such a long term investment was nothing other than commission driven, he said.
According to the complainant, during June 2005 the respondent met him and suggested that he make his existing Sanlam endowment policy (which he had previously sold to complainant in 2001) paid up.
A new policy could then be issued by Metropolitan - a so-called Contego B5 Bomber policy - which would give him better returns than the Sanlam one. Complainant agreed and also decided to increase the premium from the R465, 85 he was paying toward the Sanlam policy to R500 for the new one.
The complainant also alleged that respondent had told him that he could cash up the Metropolitan policy at any time and he would be paid out the premiums together with the growth.
The complainant also said that he told respondent that as the Sanlam policy was to mature in July 2011, he wanted the term of the proposed new Metropolitan policy not to exceed that term, i.e. that the premiums should only be payable up to and including July 2011 - a term of five years.
During March 2006 the complainant received his retrenchment package. He decided to consolidate all his premiums with a view to doing financial planning. On 20 June 2006 he met a Doug Meyer at Metropolitan Odyssey to obtain the current value of the Contego B5 Bomber policy. He then found out that the term of the policy was 15 years and not five years as he had requested.
The cash value of the policy was only R1 606, even though he had paid R6 000 in premiums over the previous 12 months.
It was also during this time (March 2006) that he perused an earlier policy he took out through Louw in 2001. He found that the policy had a term of 24 years when it should have been 10 years. He also found out that the policy had no cash value for the first five years. He eventually cancelled that policy.
Giving the Ombud his version of events, the respondent said the complainant’s wife, who was a housewife, had a Sanlam life policy for which complainant was paying a monthly premium of R766, 72.
Since complainant was the breadwinner, he suggested that it would be better that complainant have life cover over his own life in favour of his wife. Complainant’s wife’s policy had built up some value over the years and it was decided that the policy be surrendered and the proceeds used by her towards a business she wanted to start up.
The premium saved was utilised for two new policies for the complainant - one a 10-year endowment and the other, life, disability and trauma cover - also with Sanlam. That was in 2001.
Over the years the parties met each other a number of times and, says respondent, the complainant never indicated any dissatisfaction with his portfolio.
In June 2005, when complainant expressed his dissatisfaction with the growth of the Sanlam endowment policy, respondent suggested a Metropolitan Odyssey endowment product called “Contego B52 Bomber”.
He said the term of the policy - 15 years - was expressly discussed with complainant, who had agreed to it. The Sanlam endowment policy was made paid-up and the new Metropolitan policy came into force.
However, the Ombud was not satisfied with the respondent’s version of what had transpired and found he had not complied with the requirements of the FAIS Act and the General Code for Authorised Financial Services Providers when he advised complainant to replace the one investment product with another.
The respondent had failed to keep copies of the record of advice which would have cast light on what exactly transpired at the time the advice was given. Failure to keep these records was a contravention of the General Code.
The Ombud said when the respondent realised the Sanlam 10-year endowment policy was not providing an adequate return, a probable option would have been to switch the portfolios in which it was invested - at minimal cost to the complainant.
“But the switch to a new product - with the looming retrenchment of the complainant - to a 15-year term could not have been prudent in the given circumstances and seems in all probability to have been commission driven,” said the Ombud.
Source: Simeka TWS Communications
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