CR193 Misselling – was advice by agent appropriate – was the investor’s decision informed?


Misselling – was advice by agent appropriate – was the investor’s decision informed?

The policyholder, the complainant in this matter, was invested in a smooth bonus portfolio with an insurer when he was approached by an agent of the insurer on turning 55.

His investment of R1 201 771 was moved into an off-shore equity portfolio on the advice of the insurer’s agent.

A full analysis was not done but the agent obviously knew that this money was earmarked for retirement as it was in a retirement annuity fund. It appeared that the agent also knew that the policyholder proposed to use his then maximum R750 000 foreign exchange allowance to invest other monies off-shore.

The policyholder was given the following motivation by the adviser on 30 January 2001 before he moved his money:
o past performance figures of smoothed bonus and off-shore portfolios. An explanation of why the last mentioned returns were superior to the current portfolio;
o against that background a suggestion was made that the full combined accumulated value of his RA should be moved off-shore;
o a statement was made in writing that the investment would be “effectively preserving your retirement capital” with access to a different portfolio.
In fact there was no capital guarantee of any kind in the new portfolio.

To our question whether the motivation did not constitute incorrect information, the branch office at which the agent was located responded as follows:
“The capital was excellently preserved during the 1st year by giving a return of 20,67%. Mr M was sent a report detailing performance and by having R750k directly offshore would have an idea of how the rand was performing. Any investment needs to be reviewed, and my adviser was not given the opportunity, as he did with other clients, of reviewing the portfolio and making changes. He could not do this as the client had “fired” him and appointed a broker as his agent.”
The branch also pointed out that the policyholder had invested off-shore in a number of other endowment policies and stated the following:
“This is clearly a client who was very bullish about off-shore funds, and had previous experience.”
In our view the policyholder had not made an informed decision. He was advised by the intermediary that the investment would be “effectively preserving your retirement capital.” That statement in our view was incorrect and could not be read to mean anything other than that the capital was not at risk of reducing. The actual risk which attached to this investment was therefore not appreciated by the policyholder. This was a material fact and with this kind of misinformation it could not be said that the policyholder was properly informed. This was of particular concern in the light of the fact that the policyholder had been in a sure profit portfolio prior to the move where he had more security than in his new portfolio.

The insurer’s branch office made the point that the policyholder had also invested other monies off-shore, to bolster their stance that the advice was appropriate. In fact it did the opposite. If the policyholder already had a substantial amount of money off-shore then the advice that an even larger portion of his money which he earmarked for retirement should also be moved off-shore made the advice even less appropriate.

In our view the insurer had not raised any points of substance to counter the allegation by the complainant that the policy had been based on inappropriate advice. In the circumstances we made a preliminary ruling in favour of the policyholder. The insurer then made an offer of R235 602,87 to the policyholder to put him in the position he would have been had his capital in fact been guaranteed. The complainant accepted the offer and the case was closed.
November 2006