Abstract

South Africa has low levels of financial literacy and clients often, to their own detriment, take up specialised and complex financial products without a proper understanding of the product due to a lack of financial knowledge. This situation places the client at a clear disadvantage and the clients are unable to make informed decisions and because the advice tendered by the financial advisor did not enable the client to make an informed decision based on the client’s factually established or reasonably assumed level of knowledge. The Financial Advisory and Intermediary Services Act along with the General Code of Conduct for Authorised FSPs and their Representatives (the GCC) is aimed at protecting consumers in the financial services industry. The GCC, as one of the primary legal instruments for consumer protection in the financial services industry, specifically requires an advisor to provide advice based on the client’s factually established or reasonably assumed level of knowledge. Clients who are not satisfied with the advice provided by an advisor may approach the Ombud for Financial Services Providers (the FAIS Ombud) when this duty imposed by the GCC is not adhered to. Molate v Discovery Life Ltd (04862/15–16/GP2) serves as an example of the application by the FAIS Ombud of this specific duty. This contribution will briefly reflect on financial literacy and then explore financial literacy-related consumer protection in the GCC. Thereafter the contribution considers how this protection has been enforced by the FAIS Ombud by examining Molate v Discovery Life Ltd where the issue of the client’s level of knowledge of long-term insurance products was specifically placed under the microscope. The contribution concludes with recommendations to guide financial advisors providing advice in the context of the client’s factually or reasonably assumed level of knowledge.