February 9, 2008
By Laura du Preez
The financial advice ombud this week sent brokers and advisers a warning about disclosing their costs and charges clearly and timeously when he ordered a broker to repay a large portion of the commission he had failed to disclose properly.
Elizabeth Penzhorn, a teacher from Cape Town, complained to Charles Pillai, the Ombud for Financial Services Providers, that a broker, Seppo Ranta of Point Broker Services in Cape Town, had not fully disclosed costs that were deducted from two annuity contracts he had recommended to her.
Penzhorn told the ombud that when she had asked Ranta what the costs of her investments would be, he had assured her that they would be "nominal". She discovered only later that the costs in fact amounted to R31 920 and R5 574.27.
She made the discovery when she received the contracts from the product supplier, Momentum.
Penzhorn invested R560 000 in the first contract for Momentum's Investo Linked Investment, and R188 337 in the second contract for Momentum's Investo Designer Annuity. Ranta had charged the maximum commission of five percent on the linked investment annuity contract and 1.5 percent on the other.
Penzhorn threatened to cancel the contracts when she discovered these costs, but Ranta persuaded her not to. However, they could not resolve her complaint about the costs and Penzhorn went to the ombud.
Ranta told Pillai he had disclosed the costs to Penzhorn and referred the ombud to the fund fact sheets of the underlying investments as proof that he had done so.
But Pillai found that neither of these documents "makes any reference to the costs that would have been levied in respect of the investments in the products concerned".
The ombud questioned why the broker had not provided Penzhorn with quotations from Momentum which clearly reflected the costs of the initial commission and also showed that a trail commission of one percent would be deducted.
He also questioned why Ranta had only asked Penzhorn to sign the last page of the investment application form and had not obtained her signature on the relevant portion of the application form relating to how costs were calculated.
Penzhorn alleged that she had signed an incomplete application form.
The ombud said Ranta had "not pertinently refuted the allegation" that he had said the costs would be nominal and had produced no evidence that he had disclosed the costs eventually charged.
Pillai said the 1.5 percent commission charged on the Investo Designer Annuity could be regarded as nominal and that the same commission should, therefore, be applied to the Investo Linked Investment, rather than the maximum five percent commission Ranta had chosen to charge.
Pillai accordingly ordered the broker to refund R22 344 - the difference between commission at five percent and at 1.5 percent on the linked investment annuity contract - plus interest to Penzhorn.
  
 
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