REGULATION GUIDELINES

The Financial Advisory and Intermediaries Services Act (Act no. 37 of 2002) stipulates in Section 7 that a person may not act or offer to act as a financial service provider (FSP) unless such a person has been issued with a licence under Section 8 of the FAIS Act.

A financial service provider in terms of the FAIS Act refers to a person, other than a representative, who as a regular feature of the business of such a person:

furnishes advice or
furnishes advice and renders an intermediary service or
renders an intermediary service

Intermediary Service means any act, other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier:

the result of which is that a client may enter into, offer to enter into or enters into any transaction in respect of a financial product with a product supplier or
with a view to-
buying , selling or otherwise dealing in, managing, administering, keeping in safe custody, maintaining or servicing a financial product purchased by a client from a product supplier or in which the client has invested.

Financial product means inter alia a health service benefit provided by a medical scheme as defined in Section 1(i) of the Medical Scheme Act.

Disclose Licensing and Accreditation Status

It is therefore essential that to act as an FSP and specialising in medical scheme products, the broker needs to display for the client to ascertain that the broker is indeed a registered FSP:

the current licence issued by the FSB
the accreditation certificate of the Council of Medical Schemes.

The FAIS Act in Section 8(8) also stipulates the following with regards to the display of the license issues under this act to do the business of an FSP:

“A LICENSEE MUST –

display a certified copy of the licence in a prominent and durable manner within every business premise of the licensee;
ensure that a reference to the fact that such a licence is held is contained in all business documentation, advertisements and other promotional material;
ensure that the licence is at all times immediately or within a reasonable time available for production to any person requesting proof of licensed status under authority of a law or for the purpose of entering into a business relationship with the licensee.”

Section 8(1) (a) and (b) of the FAIS General Code of Conduct stipulates that an FSP other than a direct marketer must, prior to providing a client with advice, take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice. This means that the broker needs to conduct an analysis, for purposes of advice, based on the information obtained from the client.

Disclosure of Fees

The FAIS General Code of Conduct prescribes the manner in which fees are disclosed.

In terms of the FSP, and obviously applying the principles in health care, the following fees and charges must be disclosed separately to enable the client to make an informed decision:

The amount and frequency of the fee
The identity of the recipient
The service for which the fee or charge is levied

The Medical Schemes Act also determines that the broker must disclose to the client with which medical scheme he/she has entered into an agreement.

It is important for the client to understand that the statutory fee that the broker receives for introducing a client as member to a medical scheme:

Is ongoing for as long as the client requires
Includes ongoing broker services
Can be discontinued upon the request from the client to the medical scheme

Record-keeping

Section 9 of the FAIS General Code of Conduct stipulates that an FSP must maintain a record of advice that must reflect the basis on which the advice was given.

“A provider must, subject to and in addition to the duties imposed by section 18 of the Act and section 3(2) of this Code, maintain a record of the advice furnished to a client as contemplated in section 8, which record must reflect the basis on which the advice was given, and in particular-

A brief summary of the information and material on which the advice was based
The financial products which were considered; and
The financial product or products recommended with an explanation of why the product or products selected, is or are likely to satisfy the client’s identified needs and objectives.”

It is also provided for that such record of advice is only required to be maintained where, to the knowledge of the provider, a transaction or contact in respect of a financial product is concluded by or on behalf of the client as a result of the advice furnished to the client.

Administrative Record-Keeping Process

In order to demonstrate compliance with the above, an FSP is required in terms of Section 3(2)(a)(i) of the FAIS General Code of Conduct to have appropriate procedures and systems in place to record such verbal and written communication relating to a financial service rendered to a client.

Section 18 requires the FSP to maintain records for a minimum period of five (5) years, save to the extent exempted by the Registrar.

What has to be recorded are the following:

Known premature cancellations of transactions or financial products by clients of the provider
Complaints received together with an indication whether or not an such complaint has been resolved
The continued compliance with the requirements referred to in Section 8
Cases of non-compliance with the Act, and the reason for such non-compliance
The continued compliance by representatives with the requirements referred to in Section 13(1) and (2)

Therefore, the FSP must have processes and systems in place to:

Ensure that the documents can be stored and retrieved
Keep the documents safe from destruction