During 2000 the policyholder sought advice from a bank on how to invest the R20 000 she received on her husband’s death. She informed the broker that the money was to be invested for her children’s education. On the advice of the broker, the money was invested for 5 years in an offshore equity portfolio with an insurer. The policy commenced on 1 March 2000 and matured on 1 March 2005 with a value of R14 245,48.
The complainant, a friend of the policyholder, submitted a complaint shortly after the policy matured querying the advice given to the policyholder at inception. He was of the view that, given the policyholder’s circumstances, the broker should not have recommended a 5-year pure endowment policy and it was alleged that the risks of the particular portfolio were not explained to the policyholder.
As the broker was employed by a brokerage who is a subscribing member to the Ombudsman’s scheme, the office proceeded to investigate the complaint.
The broker, who was no longer in the employ of the brokerage, submitted a report stating that the offshore portfolio was explained to the policyholder and that “no-one was aware that the rand would fall to make this investment pay less than the projected values”. The brokerage concurred. It was of the view that the policyholder received the correct advice and that she had knowledge of the portfolio she was invested in.
The matter was discussed at a fortnightly Adjudicators’ meeting where it was decided that the advice given was not appropriate. We wrote to the brokerage and provided the following reasons for our decision.
1. The circumstances of the policyholder at the time the advice was given were of relevance. She was a 37-year old housewife and a recent widow at the time, with dependants. She received the R20 000 on the death of her husband. There was no indication that she had access to any other capital or source of income, or that a risk profile of the policyholder was undertaken. Taking the policyholder’s circumstances into account and the amount she had available for investment, we were of the view that the funds should not have been placed in an offshore portfolio and subjected to the fluctuation of the international markets.
2. It was initially alleged that the policyholder was not advised of the risks of investing in an offshore portfolio. We were aware that the particular portfolio in the three years prior to the investment achieved growth rates of 22,76%, 27,14% and 30,84% respectively. It could very well have been that because of the good performance of the portfolio, the risks thereof were not in fact explained to the policyholder. We were of the view that, simply because the portfolio performed well, it did not follow that the advice given was appropriate or that the risks were minimised.
3. Taking the second point into account, we could not come to the conclusion that the policyholder made an informed decision about the option that was provided to her. There was also no indication that other options were presented to her. The fact that she signed the application form was not sufficient proof that she made an informed decision, if she was not adequately advised of the option and its implications.
4. The mandate given to the broker was to invest the R20 000 for the policyholder’s children’s education. Bearing this and the above points in mind, we were of the view that the advice was not appropriate.
We therefore made a provisional ruling against the brokerage that the policyholder should be placed in the position she would have been in had the appropriate advice been given at the inception of the policy. We afforded the brokerage an opportunity to inform us what appropriate advice would have been. It did, however, appear to us that a policy might not have been a suitable vehicle for the investment and we requested the brokerage to consider other alternatives in this regard, such as a money market bank account.
The brokerage advised that the capital of R20 000 with interest earned would have achieved an amount of R33 164,74 in a money market bank account. It therefore offered the policyholder the difference between this amount and the actual maturity value plus interest, which amounted to R18 813,51.
The policyholder accepted the offer and the amount was paid accordingly.