Adjudicator, Muvhango Lukhaimane, said in her determination that while the imposition of causal event charges was a lawful practice, it was unacceptable for the fund (first respondent) and Discovery Life Investment Services (Pty) Ltd (second respondent) to wilfully disregard the rights of the complainant to be provided with accurate information.
The complainant joined the fund on 23 September 2014. In July 2016, he requested to be transferred in terms of section 14 of the Act from the first respondent to the Allan Gray Retirement Annuity Fund.
An instruction letter of intent was sent on the complainant’s behalf by the Allan Gray Retirement Annuity Fund to the first respondent on 25 July 2016. He said in the letter he requested the first respondent to provide any penalties or unrecouped costs associated with the section 14 transfer in order for him to make an informed decision.
He said the first respondent provided him with a client declaration form which reflected a zero penalty or zero unrecouped costs. Based on the information, he proceeded with the transfer and signed the form.
He further submits that his financial advisor received a copy of a form signed by the principal officer of the first respondent, reflecting a transfer value amounting to R119,058.87 with no penalties reflected on the client declaration form.
However, when the Allan Gray Retirement Annuity Fund received the transfer value, there was a discrepancy between the transfer value received and the amount reflected on the form. On investigation, he discovered that a penalty charge of R13,949.90 had been levied.
The complainant said when his financial advisor approached the first respondent to query the penalty, the latter admitted to having made an error and failing to disclose the penalty as he had requested on his instruction letter of July 2016.
The first respondent asserted that despite the error it made, it was entitled to charge a penalty for prematurely terminating the policy.
The complainant said he took the decision to proceed with the transfer based on the information supplied to him by the first respondent and he was of the view that he was prejudiced due to the first respondent’s administrative error.
The second respondent submitted that the early exit fee disclosure was made in several documents presented to the complainant.
It stated the penalty fee was in accordance with the provisions of the Long-Term Insurance Act, 52 of 1998 and in accordance with accepted actuarial principles.
It submitted that as a result of an administrative oversight, an early exit fee was not noted on the client declaration form.
It further submitted that in terms of the provisions of section 14A of the Act, any member of a retirement fund was only entitled to his or her minimum individual reserve. It said the complainant’s minimum individual reserve was R119,058.87, less early exit fees of R16,740.65, which totalled R102,318.22.
In her determination, Lukhaimane said the second respondent conceded that the first respondent had made an administrative error in informing the complainant that no early exit fees were to be deducted from his fund value.
“The critical question for determination is whether or not the misstatement made to the complainant constituted a delict.
“The complainant indicated that upon receipt of information that no early exit fees were applicable, he decided to proceed with the transfer.
“He further explained that had it not been for the information provided to him, he would perhaps not have proceeded with the transfer.”
She said the complainant spelt out in his letter to the first respondent that he wanted to be presented with all charges and penalties to be applied in the event that he continued with the transfer.
“He also made it clear in the said letter that, upon receipt of the said information, he will determine the desirability of continuing with the transfer.
“Thus, the complainant’s decision whether to proceed with the transfer or not, hinged on the response of the first respondent.
“Therefore, the first respondent’s response in providing him with a client declaration form containing zero early exit fees and the signing of section 14 documentation containing a zero exit fee transfer value by the principal officer of the first respondent motivated the complainant to proceed with the transfer.
“The negligent misstatement by the first respondent caused the complainant to act to his prejudice. Therefore, there is a causal link between the administrative error made by the first respondent and the prejudice that the complainant suffered.”
Lukhaimane said while the imposition of the causal event charges was a lawful practice governed by the LTI Act, it was unacceptable for the respondents to wilfully disregard the rights of the complainant to be provided with accurate information.
“The respondents have not explained why they failed to inform the complainant of the administrative error that had been committed and ask him if he indeed wanted to proceed with the transfer in light of the new developments.
“This tribunal has noted that the National Treasury has published the Retail Distributions Review (RDR), which is meant to be legislation aimed at increasing transparency and improve financial advice standards in the financial services arena.
“The RDR, which fosters Treating Customers Fairly (TCF) principles, proposes a significant regulatory reform meant to regulate the conduct of business in the financial services space for the benefit of consumers.
“One of the proposed changes under the RDR is to do away with commission payments which strangle consumers when they want to exercise their right and terminate their policies or effect changes thereto.
“The expedited implementation of RDR regulations will extricate consumers from the shackles of outdated policies which are attached to the imposition of excessive and obscure charges,” said Lukhaimane.
She said the respondents’ actions were inconsistent with the principles espoused by the TCF initiative and they breached their duty of care towards the complainant.
She ordered the first respondent to refund the complainant the amount of R16,740.65 unlawfully deducted from him as an early exit fee, together with 10.5% interest.
