Background:

1.) The Complainant lodged a complaint with the Office of the FAIS Ombud against the Respondent after being unable to access funds invested in a living annuity.

2.) In September 2023, the Complainant invested approximately R262,000 in a living annuity on the advice of the Respondent; however, whilst the Complainant submits that he was informed that two-thirds of his retirement benefit had to be used to purchase an annuity, he was never advised that he would later be restricted from withdrawing the capital invested in the living annuity.

3.) Therefore, when the Complainant sought access to the funds due to financial difficulties, he was told he could withdraw the funds in full only once the annuity value fell below the statutory threshold of R125,000.

4.) The Respondent denied any wrongdoing, stating that a needs analysis was conducted, annuity options were discussed, and a Record of Advice (ROA) was signed by the Complainant before the investment was made.

Assessment of Evidence:

5.) The key issue was whether the Respondent adequately disclosed the withdrawal restrictions attached to the living annuity before the investment was made.

6.) The evidence provided by the Respondent was that a Record of Advice was completed and signed by the Complainant, reflecting discussions about various annuity options. However, there was no evidence that the Respondent explained the statutory restriction preventing full withdrawal of the living annuity capital. The only documented explanation of the withdrawal limitation came from the Insurer in January/February 2025, after the Complainant requested access to the funds.

7.) Furthermore, the section of the ROA dealing with accessibility of funds was marked “N/A”, indicating that the restriction was not properly recorded or disclosed.

8.) In correspondence to the Respondent, the Ombud referred to the General Code of Conduct for Authorised Financial Services Providers and Representatives (‘the Code’), specifically Section 7 of the Code which requires that a financial services provider must provide a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision.

9.) Reference was also made to Treating Customers Fairly (TCF) Outcome 3, which requires advisers to provide clear, full and timely disclosure of material product features, including restrictions on benefits and access to funds.

10.) The Office concluded that the withdrawal restriction was a material feature of the product and the Respondent failed to demonstrate compliance with its disclosure obligations. This amounted to non-compliance with the Code as well as TCF principles.

11.) With reference to the Complainant’s access to the invested capital, this Office found that the law did not permit such withdrawal. Under the Income Tax Act and Government Gazette No. 43380, a living annuity may only be commuted for cash when its remaining value is R125,000 or less. Since the complainant’s investment exceeded this threshold, he was not legally entitled to withdraw the funds.

Outcome:

12.) The Ombud accepted that the Complainant could not access the living annuity funds because of statutory restrictions. However, the Ombud found that the Respondent failed to properly disclose those restrictions when providing advice, which is non-compliance with the Code.

13.) In light of these shortcomings, the Office recommended that the Respondent pay the Complainant R20,000 as solatium in settlement of the matter, for the inadequate disclosures being made.

14.) The Respondent agreed to offer R20,000 in full and final settlement of the dispute, which was accepted by the Complainant.