CR152 Mistake – investment instruction not followed – was the client’s lack of action excusable?

See too: CR, Mistake,

CR152

Mistake – investment instruction not followed – was the client’s lack of action excusable?

Facts

The complainant retired from a pension fund during December 2000. His benefit was worth R536 777.
He relied on the advice of an insurance agent and decided to invest with an insurer. His pension benefit was first transferred to a retirement annuity fund. He immediately took a one-third cash lump sum. The balance was invested in a unit-linked annuity with the investment split fifty-fifty between two off-shore portfolios. He applied for a 10% income. The application was made on 7 March 2001.
On 13 March 2001 he sent a fax to the insurer in which he requested the following changes to the application:
he would repay the one-third i.e. R160 473 and the insurer should pay only R120 000 tax-free in cash, the balance to be invested in his compulsory annuity;
the investment portfolios should be changed to 75% in the one existing fund and 25% in a new fund;
the income percentage should be changed to 8%.

The insurer, after first denying it, admitted to receiving the instruction, however they did not act on instruction 2 but only on 1 and 3.
The complainant was sent the policy and other documents reflecting the investment portfolios in his initial application. His agent also saw these documents.
According to the complainant he did not notice the discrepancy because the names of the portfolios were very similar. Only in October 2002 did he discover the error when another adviser from the insurer advised him that his investment had fallen in value.
When he contacted the insurer it was not prepared to accede to his request to put him in the position he would have been in had his investment been in the freshly chosen portfolios from inception.
The insurer offered him R27 000 which was the difference between the old and the new investment choices, six months after his investment. It argued that by then he should have noticed the discrepancy.
The investment had remained in the wrong portfolios up to the time when the complaint was lodged with our office more than a year after he first noticed the discrepancy.

Discussion

In our view the insurer had been at fault for not investing in accordance with the complainant’s instruction. However, in October 2002, when the complainant noticed the discrepancy, he should have ensured that the investment be moved to his chosen portfolios.

We used this date as the cut-off date for calculating the values.

We suggested that the insurer compensate the complainant on the following basis:

• 60% of the difference between the values of the chosen portfolios (higher values) and the values in the “wrong” portfolios on the cut-off date had to be paid into the annuity;
• the cost of investing in the retirement annuity had to be paid into the annuity. The complainant need not have moved to a retirement annuity fund prior to purchasing further benefits from the insurer.

We apportioned the loss suffered on a 60/40 basis because the insurer was initially at fault but the complainant should have checked his policy and the statements he subsequently received to make sure that the annuity had been correctly invested.

Result

The insurer accepted our view immediately but the complainant only did so reluctantly and after further submissions and some delay.

JP
April 2006

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