By Brett Ladouce
It is hardly debatable that retirement fund members who employ the services of skilled and experienced financial advisers to assist them with their retirement planning have a higher probability of achieving better outcomes than members who decide to take on the retirement planning battle on their own. There has however always been a debate in the financial services industry about who “owns the client” and by extension, the client information. By Brett Ladouce
One argument is that the client and all information in relation to the client is owned by the financial services provider (FSP) who has a contractual relationship with the client. Another might argue that the representative (financial adviser) of the FSP who is assigned the responsibility to provide the advice and intermediary service to the client is the true owner of the client relationship.
This debate becomes a contentious issue where the representative leaves the services of the FSP to work for another FSP or to start a new FSP in competition with his old FSP.
The General Code of Conduct for Authorised Financial Services Providers and Representatives in terms of the Financial Advisory and Intermediary Services (FAIS) Act states the following:
A FSP must always render financial services honestly, fairly, with due skill, care, and diligence, and in the interests of clients and the integrity of the financial services industry.
A FSP must, subject to any contractual obligations, give immediate effect to a request of a client to terminate the contract with the FSP.
Where a representative of the FSP ceases to operate as a representative of the FSP, the FSP must immediately take reasonable steps to inform clients who were serviced by that representative that he or she can no longer render services on behalf of the FSP.
The Financial Services Tribunal was recently faced with three cases where the issues of the ownership of clients and client information were central to the review of the debarment of representatives.
In the first two cases (FST case numbers FSP 25/2022 and FSP 26/2022), the Tribunal was requested to review the debarment of two representatives of an FSP. While still employed by the FSP, the two representatives entered into an arrangement in terms of which confidential client information of the FSP was transferred to a future employer and competitor of the FSP with the goal of enabling the other FSP to compete more effectively with FSP they were leaving.
One representative argued that their actions were justified because an employee had the freedom to "choose and determine my own destiny and future employment" and "clients do not "belong" to an FSP, client(s) can choose who they want to do business with".
The representatives further argued that the clients were not prejudiced by their actions as none of the clients complained that "they were stolen from, lied to or defrauded". The Tribunal found that the public is at risk if a financial services representative of one FSP is prepared to steal confidential information or if he or she acts on behalf of another FSP by transferring clients to that FSP before being employed by that FSP as a representative. The decision to debar the two representatives was upheld by the Tribunal.
In the third case (FST case number FSP 57/2022) a person employed as a key individual of a FSP transferred confidential client information from the work laptop to a private email address without the knowledge and consent of the FSP.
During a disciplinary hearing, the employee admitted to transferring the confidential information to the private email account, but claimed the conduct does not amount to dishonesty that could justify a debarment.
This case differed from the two cases mentioned above in that there was no evidence that the employee gave or intended to give the information to a competitor of her employer or that there was an intention to use the confidential information to attain a personal benefit.
The Tribunal found that the fact that the employee had access to confidential client information of the FSP does not entitle that employee to transfer that information to a private email account without being authorised to do so. The conduct of the employee in transferring the client information to a personal email account exposed the FSP to the risk of being sued by current and former clients if their personal information that was entrusted to the FSP ended up in the wrong hands. The Tribunal found that the employee was dishonest and lacked integrity and the disbarment was upheld.
It is clear that the FSP, and not the representatives of the FSP, carries the responsibility of providing advice and intermediary services to the client and that it must ensure that the personal information of clients is protected at all times. The representative of the FSP is not the owner of the client information; he or she only is only empowered to use the information for the intended purpose, namely the provision of services to the client on behalf of that FSP. When the FSP leaves the services of the FSP, he or she no longer has the authority to deal with the personal information of the clients of the FSP.
Nobody owns the client. A client has the prerogative to enter into and to cancel a contractual relationship with a FSP at any time, but as long as that relationship is in place, the responsibility is on the FSP to provide advice and/or intermediary service to the client and to protect the personal information of the client.
The FAIS Act assigns client responsibilities and not client ownership. The debate should therefore be about who carries the responsibility for providing an advice and intermediary service to the client and not centred around the ownership of the client relationship.
Ladouce is a pension funds lawyer and the author of Pensions for Palookas
PERSONAL FINANCE
* * The views expressed do not necessarily reflect the views of IOL or its sister publications