CR145 Misselling; misleading marketing material.


Misselling; misleading marketing material.


The complainant, a 47 year old teacher, was handed a flyer while she was standing in a bank queue, by a broker in the employ of a brokerage linked to the bank. The flyer read: “WORRIED? OUR EXPERT ADVICE WILL GIVE YOU PEACE OF MIND. DID YOU KNOW? – YOUR CHILD’S EDUCATION, A HOUSE (NEW OR EXTENSIONS), A CAR, SECURITY FOR FUTURE NEEDS FROM DAY ONE, MAY NO LONGER BE A WORRYING FACTOR IF YOU LET US SHOW YOU HOW”. The flyer meticulously set out, in a table format, cash values which would be realised by investors at different time periods of investment, namely 5, 7, 10, 12 and 15 years. The complainant maintained that this led her to believe she could be paid R51 507 after five years, if she paid R500 per month. She alleged that the broker did not alert her to any risks or pitfalls, and she did not understand the concept “illustrative value”. Although she was Venda-speaking with English her second language, she was presented with an Afrikaans application form for an insurance policy, which she signed in October 1999.

After contributing R40 450 for five years she was paid an amount of R28 000. The investment had been placed in foreign equities, and the unexpected strengthening of the rand and decline in global investment markets over the five years contributed to the poor performance.

The complainant engaged the services of an attorney to lodge her complaint.


It was the unanimous view of the office that this was a clear case of misselling, together with the use of misleading marketing materials.

The flyer used by the broker was misleading. It did not indicate that the product sold was an insurance policy, but created the impression that this it was a bank product, through its prominent heading. The bold print on the flyer promised “peace of mind” and a lumpsum investment which could “work wonders”. The table led the reader to believe that s/he could be paid R51 507 after five years, if s/he paid R500 per month. These bold promises were qualified by a sentence in small print reading “Returns are quoted at illustrative values of 12%”. There was no explanation of the term “illustrative values”, or that the values payable would be the actual values achieved. Only one illustrative rate, the high rate of 12%, was mentioned, in non-compliance with the LOA guidelines stipulating that a high and low rate be illustrated. There was no mention of risk; as conceded by the broker’s manager, the material focussed on the benefits, and “unfortunately did not highlight the risks”.

The product was also in our view missold, in that inappropriate advice was rendered. The initiative did not come from the complainant but from the broker, who approached her with the flyer in a banking hall queue. The broker stated that the product was in his view appropriate for her needs, yet he made no effort to establish what her needs, financial circumstances or risk profile were. As a 47-year old teacher these were in all likelihood not conducive to the risk of an investment in foreign equities, no matter how good the past performance of the portfolio had been. An Afrikaans form was filled in on her behalf, despite the fact that she was Venda-speaking with English her second language. By the broker’s admission no other options for investment were discussed with her apart from the equity international portfolio.

There was a dispute of fact as to whether the concept of illustrative values or the risk attendant on the policy were discussed at all with the client; the broker maintained that they were, whereas the complainant stated that they were not. The balance of probabilities in our view favoured the complainant’s version, especially in the light of the broker manager’s view (which presumably was held by the brokers) that “at the time there was no real risk” because of the good performance of the specific portfolio and the off-shore markets due to the weakening of the rand. The fact that the broker agency did not appreciate that there is always risk, borne out by events in this case, was alarming.


We made a provisional ruling that the advice afforded in this case was inappropriate, in that no effort was made to establish the suitability of the product for the complainant’s needs, the risk was not adequately explained to her, either by the broker or in the marketing materials, and she did not make an informed choice. The remedy was to place the policyholder in the position she would have been in had appropriate advice been given at the time of the inception of the policy, that is, an investment without the pitfalls of this one. The brokerage was ordered to calculate the amounts that would have been payable if the complainant had invested in a 32 day call account or the money market, and to pay the difference between what had already been paid and the higher of the two alternatives.

The calculations indicated that the money market position was higher. In response to the provisional ruling the brokerage offered to pay half the additional money market interest, as well as the complainant’s legal costs. The complainant accepted this offer.
April 2006