Loosely translated this means “beware the intermediary”. In the old world of commercial activity the Latin maxim read; “caveat emptor” let the buyer beware. This rule, finely tuned, through millennia of commercial trade and interactions has been thoroughly trashed by the rising tide of consumerism and political expedience. Legislators, anxious to prove that they are “doing something” for their constituencies fall over each other to outmaneuver their global fellows in passing increasingly uncertain and unworkable rules for the commercial world.

It was enlightening to read recently that, in Australia, one of the last remaining professional indemnity insurers abandoned the provision of cover for our Australian Financial Planning counterparts;

“A recent product review has determined that the financial planners segment of the professional indemnity market is no longer within our risk appetite,” Suncorp Commercial Insurance executive general manager, commercial portfolio and underwriting management, Darren O’Connell told ifa (an Australian Intermediary Magazine).

Sound business activity requires certainty in dealing with markets. Uncertainty results in service providers especially the PI insurer leaving the market. In this regard the provision of financial advice in South Africa has become fraught with uncertainty. In addition to PI suppliers and advisers themselves leaving the market, uncertainty also results in escalating disclosures to clients to secure certainty. This renders the paperwork more and more complex thus negating the advice given.

Consider the recent ombud “case study”, where a financial adviser was forced to settle R100,000 arising from an incorrect calculation of a tax lump sum. The Ombud stated;

“We decided that although the provider was not a tax practitioner, he ought to have known of the tax implications, given the information furnished by complainant”

The ombud. goes on to some useful lessons to the planners:


  •  "Relevant information should be sought prior to providing financial services to clients. ie you have to insist that you customer tells you everything or insert a cause disclaiming liability for what he did not tell you.
  •  "Limitations on the part of the provider should be clearly conveyed to clients. In other words, insert significant disclosures as to how stupid you are.
  • "Tax implications relating to withdrawal of lump sums at retirement should be discussed and verified from SARS". Be aware also that you will not live long enough to secure a response from SARS. Your most useful feedback from SARS in these circumstances is that the client “should visit our offices in person” This you can then convey to your client with suitable documentary proof.
  • "All matters are decided on, based on documentary evidence provided".  Another lengthy disclaimer related to the first point.

The most important advice to be implemented by Financial Advisers as a result of this settlement and its related advice is; 

Don’t ever calculate an accurate figure in presenting such advice to your clients. Always at least precede any figure with the words “approximately” or “about”. Always add a paragraph stating that;

“all figures in this document are to be regarded as a “best guess”. They are finally determined by SARS, another financial institution or other entity over whom we/I have no influence or control. I/we furthermore usually have no independent way of determining whether the figures finally calculated by these entities are accurate or whether they are the figment of some corporate flight of fantasy by an external financial services provider. If they are projected any further than 6 months into the future or are linked to the charges levied by administrators they are immediately to be regarded, at best, as possible approximations of an uncertain future”.

A paragraph like this will render the advice you provide your client with sufficient vagueness to ensure that the advice document is meaningless but more importantly can never be used to extract a settlement of the kind described above. Your client will then, correctly, question what it is that you are actually responsible for. You can then advise that you are responsible for the guesses relating to his very long term chances of adequately funding his retirement in 25 years’ time, but of course, there are some caveats that need to be considered.

(This article was originally published in InvestSa)

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