You walk into a cellphone shop with the intention of buying a new mobile phone and, on completion of the transaction, the salesperson asks you whether you want insurance cover for your new device. You say yes, so he hands you the insurance documents and points to a clause containing the calculation of your monthly instalment. You’re happy and he shows you were to sign, which you do. But… did the salesperson in this scenario provide ‘advice’ in terms of the Financial Advisory and Intermediary Service Act (FAIS) and therefore should the salesperson comply with FAIS?
Advice’ is defined in FAIS as ‘any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients’. It also includes a recommendation, guidance or proposal, of a financial nature, on the conclusion of any transaction which is aimed at incurring any liability.
‘Advice’ may only be given by a qualified and registered financial services provider (FSP), as defined, or a ‘representative’, as defined, of an FSP.
It is clear that if a person gives advice orally then this will fall within the definition of ‘advice’. But what happens if the ‘advice’ is in writing and one merely points at it and the document is signed by the customer?
In Gumede v JDG Trading (Pty) Ltd (trading as Barnetts) 2009, the FAIS Ombud was faced with a complaint from Ms Gumede who purchased a small television and a small stove from the respondent. The complainant was given papers to sign by an employee of the respondent. Those papers included, inter alia, a schedule to a loan agreement, Goods Insurance Policy and Credit Life Policy. The salesperson produced the documents and showed the complainant where to sign.
The respondent argued that the salesperson did not give advice and as such there was no duty to comply with FAIS.
In Gumede, the Ombud stated that the use of the word “any” in the definition of advice, clearly includes both expressed and implied recommendation and guidance.
It’s important to note, as was illustrated in Gumede, that the client had not intended to buy a financial product. The client’s primary intention was to buy a television.
A contract is an agreement made with the intention of creating an obligation(s). A contract consists of an invitation to agree to the creation of obligations between the contracting parties and consent thereof (offer and acceptance). An offer is merely a proposal made by one person to another indicating his willingness to enter into a contract with him on certain terms. By showing the client where to sign, the salesperson is making an offer, which may or may not be accepted by the customer. This offer falls within the meaning of proposal, which initiates the application of FAIS
The above scenario and the Gumede case point to a future where more and more, companies need to be aware of the regulatory landscape that they may be falling foul of. The mere pointing out of an insurance policy can be likened to a tacit offer to enter into an insurance agreement which may constitute ‘advice’, as defined, and therefore the provisions of FAIS apply