Financial institutions must disclose all material conditions tied to products they sell to you, cases shared by the financial ombud last week demonstrate.
Former financial services ombud Noluntu Bam found that a woman was improperly advised when she transferred her retirement savings to a preservation fund after taking one third as a withdrawal, as she then emigrated and wanted access to more of her savings before reaching retirement age, but preservation fund rules prevented her from doing so. According to the rules of a preservation fund, a retirement fund in terms of the Pension Funds Act, you can make one partial or full withdrawal from the fund.
In this particular instance, however, the ombud convinced the company to pay the woman a settlement because its representative knew the woman would need access to the money before retirement, but sold her the product anyway. So, the company did not give the complainant all the info as required by the Financial Advisory and Intermediary Services (FAIS) Act before the product was sold.
Tax implications
Another theme that emerged from cases highlighted in the ombud’s annual report released on Friday, November 2, was the obligation on financial services providers (FSPs) to disclose not only all terms and conditions related to a product, but also all tax implications of transactions.
Bam highlighted a case where a retired man requested that his FSP move his savings to lower-risk funds. He asked that all fees and costs be disclosed. After he was satisfied with the information, he gave the go-ahead, only to be surprised with a R300,000 tax bill from the South African Revenue Service (Sars). This was for capital gains tax and penalties attracted by the transaction.
Unable to foot the bill, the man, referred to as Mr Shaw, sold immovable property — a transaction that also attracted capital gains tax.
Bam found that the tax implications of the transactions were not discussed at all by the FSP when it offered its solutions. This, according to Bam, was a failure on the company’s part to treat Mr Shaw fairly. The outcome was an offer to settle which he duly he accepted, after much stress and resentment...