Financial products can be complex. For someone starting out their financial planning journey, it can be a daunting process. As a result, people often have to rely on the advice and services of a licensed Financial Planner. With the quantity of information and paperwork that is involved in most financial transactions, misunderstandings are not uncommon, and due to the volume of information, key details can and often is, unintentionally omitted.
To protect the consumer against this, the Financial Advisory and Intermediary Services (FAIS) Act outlines Rights and Responsibilities that financial services consumers should be aware of and should exercise to help avoid unfavourable outcomes relating to their financial products.
What makes it especially important to be aware of your rights and responsibilities when transacting with financial services providers is that the product or service benefit is not delivered immediately. Rather, the consumer has to rely on the promise of a future outcome. For example, you will only benefit from an Income Protection policy should you claim on your policy, which, if it happens, may only occur several years after you take out the policy. Or, assessing investment growth meaningfully requires several years of committing to an investment strategy. Compare that to, for example, purchasing a product from a store or using the services of an Electrician. The transaction is immediate – you make the payment and receive the product or service. In addition, the consumer often has protection in the form of ‘Returns’ or Warranties/Guarantees.
In financial services, there are certainly avenues of recourse one could pursue. Often, however, the consumer (or their beneficiaries) may have to bear the brunt of sub-par advice or service.
Learning and exercising your Rights and Responsibilities can protect you against this.
Your Rights:
- Fair Treatment: You have the right to receive products and services that are suitable for your needs and in your best interests. During your consultation with a Financial Planner, ensure that an assessment and analysis of your needs is conducted and that the results of the analysis are presented to you together with recommendations that are based on your needs.
- Transparency: You are entitled to clear, accurate, and easily understandable information about financial products and services. You have the right to ask about the qualifications of the Financial Planner, their fees, the investment risks, insurance policy exclusions, and the list goes on. I often have clients say to me, “this is a silly question, but…”, and they proceed to ask their question. My response is that there are no silly questions and they should not hesitate to ask any question which they need to. Transparency is critical when dealing with financial products and you should be provided with sufficient information in a way that makes sense to you, so that you can make informed decisions regarding your financial planning.
- Privacy and Confidentiality: Your personal and financial information must be treated as confidential, and Financial Services Providers (FSPs) must adhere to privacy laws such as the Protection of Personal Information Act (POPIA).
- Complaints: If you are unhappy with a financial service or product, you may lodge a complaint and seek resolution. If necessary, you may also escalate your complaint to the ombudsman for FSPs or the Financial Sector Conduct Authority (FSCA). During your interactions with the FSP or the Financial Planner, you should be made aware of the process to lodge a complaint. This includes the relevant bodies as well as their contact details.
- Clear Contracts: After you take out a financial product, you should be provided with a contract that provides all the necessary details of your financial product. The information here, again, needs to be clearly explained and should be reasonably easy to understand.
While the consumer has the right to receive a certain level of advice and service from the FSP, it is equally important that they understand their responsibilities, too. Both, the FSP and the consumer, need to do their part to ensure that informed decisions are made in the consumer’s best interests. This helps prevent unfavourable outcomes such as insurance claims being declined, penalties on investment products and so forth.
Your Responsibilities
- Provide accurate and complete information. This is essential to the financial planning process and to prevent any undesirable outcomes. For example, a common cause for insurance claims being declined is non-disclosure. Or omitting details regarding one’s financial position may result in in-efficient tax planning. If you are uncertain about any particular details, disclose that you are uncertain rather than withholding the information. Transparency and honesty from both sides – the FSP and the consumer – is essential for optimal financial planning.
- Making Timely Payments: It is your responsibility to ensure that payments are made timeously. Missed debit orders for investments may trigger penalties. For insurance products, the benefits may lapse due to non-payment, though, there are grace periods for this. FSPs do have processes in place to inform consumers of missed payments, however it is also the consumer’s responsibility to ensure payments are made.
- Invest the time and energy to learn and understand your financial products. I have been practicing as a Financial Planner for more than 10 years and in my experience, I would estimate that most, if not all, of my clients will misunderstand and/or forget one or more details regarding our initial discussions on their financial product/s. And I am someone who strives to simplify the technical jargon; And I encourage questions, no matter how silly they may appear to be.
The point is, this is perfectly normal. There is often too much information to consume during the initial few meetings and therefore it can be difficult to remember and perfectly understand all the details, unless you have an IQ of 180 🙂
So, it is advisable to read through the final contract. Ensure your personal details are correct and take the time to understand the product details. If you notice an error or suddenly realise a grave mis-interpretation or an unintentional non-disclosure on your part, you can still make changes. You can still disclose the necessary details. It’s not too late.
If you need to ask the same questions again, do it. Request additional meetings if required. Seek clarification if something is unclear. If there are any errors or discrepancies, inform the FSP. And learn about the regulatory bodies like the FSCA and the Ombudsman for Financial Services Providers so if there are any undesirable outcomes due to negligence on the part of the FSP or the Financial Planner, then you know what route to follow to seek resolution.
Your Rights and Responsibilities is your layer of protection against undesirable financial outcomes.
Speak to a Financial Planning professional. To find a professional go to: https://fpimymoney123.co.za/find-a-financial-planner/
Created by: Munaf Mukadam, CFP®