David Melvill’s story: Independent financial advisor v Sanlam bureaucracy

After a short break, my weekly Rational Radio returned to a new Monday lunchtime slot with a bonus added to the usual hour. The extra time was to ensure space for this interview with the independent financial advisor being threatened with an unyielding "rules-are-rules" edict by an unbending Sanlam bureaucracy. I've known Capetonian David Melvill for some years. He is a regular at Biznews investment roadshows and although our views on gold usually differ (he just loves the yellow metal), for the rest, we're on the same page. He has also written insightful articles well read by the Biznews community. David's misery revolves around the employment of his son, also a financial advisor, to help with admin while the youngster was serving a 12 month banning order from Sanlam. The life assurer claims young Melvill broke the terms of his suspension. Dad says that's rubbish. Having read correspondence from both sides, it's impossible not to side with him. Despite meetings with numerous Sanlam bigwigs, Melvill senior has had his contract with Sanlam cancelled and is now threatened with debarment. Sanlam have since lifted Melvill Jnr's suspension, so the "cause" of the problem can once again sell life assurance. Some believe corporates stuck in the past don't deserve a licence to operate in the future. Wonder if that particular penny has dropped in the Sanlam boardroom. – Alec Hogg.I've known David Melvill for a long time. One of the guys who like me believes that everything happens for a reason and that there's a big boss up there who watches over us, but on the other hand we do differ a bit on our investment ideas. He loves Gold – a little bit like the guy in the Austin Powers movie – but David you've been having a really tough time and you've kept me in touch with the correspondence that you've been having with Sanlam. I intervened I guess to a degree and asked them for some feedback but it seems like you've hit your head against an administrative blockage here which just isn't moving. So let's start at the beginning. How did it get to the situation where you and Sanlam started locking horns..___STEADY_PAYWALL___.Alec, thank you so much for the opportunity. I really do appreciate it. And thank you for your willingness to always dig deeper than what's on the surface and get to the truth. I commend you. My situation goes back to probably almost three years ago now. My son had worked for me as an investment advisor/administrator in my practice after he'd finished his degree and then decided that he wanted to work with Sanlam whom he joined and spent three happy years with. Unfortunately he took a few shortcuts and by that I mean he signed some clients signatures but those were secondary signatures. So the application was signed, he made a mistake and then he would go and copy the signature taking shortcuts – which clearly is wrong and not acceptable, but does happen in our industry – and that was his primary fault. Sanlam followed a process with him and they ended up canceling his contract and debarring him with the FSB at the time..So you're in the financial services game, you're a financial advisor. He was working with you, he went to work for Sanlam for three years, took some shortcuts – hopefully he's learned his lesson – but he's now been debarred from Sanlam. Does that mean he can't work in the industry anymore?.Yes. Effectively they do belt and braces, they cancel your contracts and make sure that you can't go anywhere else. It does seem a bit harsh because there's no grace or any mercy with them, they have what they call a zero tolerance policy. So if you put a foot wrong you're gone. Unfortunately many Sanlam'ers have ended up on the wrong side of the wrath of Sanlam. They say they're consistent, there's no mercy so don't even try, you put your foot wrong your gone. Yet his case took eight months before they got to the bottom of it – and without going into too much detail – he was part of a group where they had an independent advisor who was in fact an advocate who presided over the situation. He listened to Sanlam's side and Lemuel's side. His finding was that Lemuel should be given a first and final warning. They chose to ignore that and fired and debarred him which was really very hard at the time. He says that more than 30 Sanlam'ers that he knows of have experienced the wrath of Sanlam. The worst is they go ahead and hand you over to a debt collector so they hand you over as soon as any lapses start coming through, two fellows in fact have committed suicide because the stresses became so great. And that really got me very worried that Sanlam who was perceived to be a good financial insurance can actually treat people so despicably..So what happened next..I created a special appointment to go and see the head of compliance at the time at Sanlam. I met with Mr. Bester. I said to him that this is really harsh. He said you know this happens, he's not fit and proper in terms of the FAIS Act we debar him but after 12 months he can reapply for his license. So he came and worked with me as my administrator. That was the only way that he could really stay in the industry and do something to earn a living, based on his experience. And he was invaluable to me as my administrator and personal assistant. I was really very blessed to have him as my PA and as a father/son relationship it was great building a rapport with him. But after the 12 months we asked Sanlam when he can be reinstated and get his license back from the FSB, Mr Bester said he'd check and get back to us. He came back with three instances where he had been involved with reinstating some policies. These were three policies that either the debit order or the stop order backfired and the policies had lapsed. He went back to the clients and just assisted with that process of putting them back on the books for the client's benefit, Sanlam's benefit and ultimately our benefit – doing the right thing – I would say. They found this to be in breach of the FAIS act. They said he's been giving advice and if he hasn't been giving advice he's been offering intermediary service. There was no new advice given – it merely was a reinstatement – filling in forms and making the submission. They contested that. The FAIS act says advice specifically with the purchase of a financial product, he was just reinstating it so there was no new advice, no new information and yet they were penal in their approach. Three or four months lapsed when they finally came through with another charge against him saying there was a complaint against him. He evidently had approached one of his clients – he had approached all of them – saying "I'm moving over to my father's practice please sign a broker's note, he will look after you in the meantime." This was not in fact a complaint against Lemuel because the client actually said she'd had four advisers in the space of just over 12 months – the existing advisor passed her onto Lemuel, he had written her the policy, Sanlam then passed her onto another adviser, because Lemuel had left Sanlam and that third advised left Sanlam so now Lemuel was the fourth person knocking on the door saying I'm back in the picture. Would you mind signing over this broker's note. She was a bit confused by all of this and decided to phone Sanlam who used this as evidence against him because he was trying to sell the services of his father supposedly. Meantime he was just trying to house her until such time as he's twelve months were up..And then it got even nastier..They had written a letter saying initially we suspect there've been some irregularities in which I responded to straight away, they gave me the three copies of the conversations with the three debit orders which merely serve to confirm that Lemuel had in fact reinstated the policies. That was to be expected. You couldn't do it any other way. But they took this a lot further and said we are now finding you in breach of the FAIS act. We believe that you have broken the FAIS act. You're no longer fit and proper, we are going to cancel your contract and we're going to file for your debarring with a FSB to..You've been trying to help your son the way I'm understanding this, your son did something that he shouldn't have done while he was working for Sanlam. He left there, he wants to stay in the industry, he did stuff which is – not unusual or unheard of – but you said it's wrong, in the meantime come and work with me and do a bit of admin as my private assistant etc. Now it's escalated to the point – because you gave your son some way to work – that you are getting disbarred..Yeah. Spot on..And how do you fight something like this?.I was shocked to see that they were wanting to deprive me of a living. They had total disregard for the 9 years that I served at Sanlam as a representative and a branch manager and then the next 25 years as an independent advisor who had handsomely supported Sanlam. During the process, the branch manager who I was dealing with, had intimated that after the initial finding – he was waiting for the follow up report when he would call for a meeting and give me the opportunity to actually discuss it with him – but they just sidetracked that one and sent me the final letter saying your contract has been cancelled..So what happens now?.I then went as high as the top of marketing – the brokers as well as the representatives – Mr. Moodley, I know him from times past and said I don't believe what's happened to me. Please won't you investigate the matter and see what can be done. He came back to me and said David you're right. Process and procedurally we haven't done well, but the facts remain the facts. I said "we've been promised a hearing but nothing has happened, you have found me guilty in absentia you didn't bother to hear my side of the story." No one was courteous enough to say let's have a meeting and thrash this one out – they just went for the jugular – just took me out. I've got a friend who wrote a strong letter – he's a lawyer by profession now a finance adviser – he helped me immensely and wrote to Sanlam. The regional executive for the Cape Province and other areas responded and asked for a meeting. I said there's no point in getting together for the meeting if you've already cancelled my contract. If you reinstate my contract, by all means let's have a discussion. If it should lead to the canceling of my contract, fair enough. He said he can't do that but that he'd been able to get a mandate from Mr. Moodley that they can revisit my situation and if I can provide them with any other evidence they will consider giving me back my contract. We did actually meet in Gordon's Bay at the restaurant with my friend Kevin Creasy and he began saying we shouldn't actually be having this discussion because Lemuel should never have been debarred in the first place. He was unfairly, unjustly treated by Sanlam and we really need to revisit that first. He put a whole document together in response to our get together, saying please consider this because David Melvill shouldn't even be in this negotiation. We should have been dealing with Lemuel's case, it wasn't dealt with properly, there was no appeal system, It's actually quite wicked. In fact I had phoned Professor Robert Vivian – head of the business school – he agreed with me. He said the insurance companies have got terrible power. They just disbar you. They actually go in through the back of the FSB website and they remove your name from the registrar. They don't ask permission, they don't do anything they just have all this authority which is totally unfair. They are prosecutor and judge yet again. And when you next look you get a letter from the FSB saying you've been debarred. He says that needs to be taken to the High Court so these insurance companies have this power removed from them, because it's terrible. You just don't get a hearing, there's no appeal system, you are just fired and sent into oblivion..But what does it mean if you're debarred? What are the consequences of it?.In the olden days it used to be the S reference system, if you'd done something dishonest you were S rated and you were deemed no longer fit for the industry. That was quite acceptable because if they could show you have stolen money, you had defrauded clients they moved to the debarring. Unfortunately the new FAIS act doesn't make provision for a fine or a penalty which should be in place. So the act in itself has the shortcomings, it's either you're fit and proper or you're gone. There's no in between and Professor Robert Vivian says there should really be some sort of penalty or some fine that can be imposed as opposed to this extreme behaviour of the FSB..So just to summarise everything, the advice to Sanlam about your son was "give him a warning", that was ignored, he was then kicked out, debarred, but there was the option for him to again reapply in 12 months. During that 12 month period he worked with you but because he worked with you, you've now been debarred, how many clients do you have who have a Sanlam policy?.I don't know. I'm not a big writer. I probably imagine I have 500 clients at least..Can you not switch them elsewhere to another Company?.The only way to do that is to rewrite the policies and that's not in my nature to go and cancel policies to rewrite them. It's a common practice that happens in the industry. At the end it's not good for the industry. We can say this company's got a better benefit as opposed to that one, but at the end of the day they are still pretty similar. My investment book is with Glacier which is the independent subsidiary of Sanlam and it's really been good dealing with them but unfortunately my license or my contract is linked to Sanlam..So what happens now as far as your engagement with Sanlam is concerned. Is there an appeal court or some last resort? If you have been debarred by Sanlam does that mean you're debarred across the industry?.Yes. The letter they wrote to me said they are applying for my debarring but they don't actually have the rights. They can only do that for representatives who are employed by them. They can make recommendation to the FSB – and by the way it is now called the FSCA after the Twin Towers legislation came in – and they changed the name, but most people know them as the Financial Services Board. They will have what they call a tribunal hearing and they will hear Sanlam's side and my side..At least you've got a court and presumably you're very confident that you won't have a problem..Yeah. I'd like to believe that nothing can happen, but these are all trial cases, this is new legislation, new opportunity. There was never an appeal court before but now there is, fortunately which makes things a lot fairer. I say to Sanlam, "I must be such a bad person, I must have stolen a lot of money for you to totally disregard my contribution that I've made to the industry. It's frightening that you really haven't even had the courtesy to afford me an interview or a conversation with the team." Their compliance and forensic departments do not afford the public any interaction or direct contact with them..And what's your son doing now?.Yeah, well this is the irony. He has now done his time and Sanlam have issued a letter saying that we have no problem anymore. He can now be granted his licence..I don't believe it….This is the irony of the situation, a laugh a minute..So he's back on board, he's all cool again..Yeah..And because he was working as your PA you are the one who's now going to be disbarred..Yeah. The worst thing was the contract. It's a twenty four hour notice either way. The problem is if I cancel my contract to Sanlam, I cut my nose off to spite my face, If Sanlam cancels, they turn my lights and water off and they deprive me from making a living, which is really effectively a good pension that I built up.

David Melvill’s story: Independent financial advisor v Sanlam bureaucracy

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