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The disclosures brokers miss

Section 7 of the FAIS General Code of Conduct is the longest duty a broker carries and the one most often satisfied by handing over a brochure. It requires a reasonable and appropriate general explanation of the nature and material terms of the contract, full and frank disclosure of anything that would reasonably let the client decide, and then fourteen specific items at the earliest reasonable opportunity. The June 2020 amendment inserted two more duties that almost nothing in a normal broking workflow produces by itself: everything in section 7 must be given to the client in writing once the transaction is concluded (section 7(3A)), and any forecast, illustration or past-performance claim must carry stated assumptions and warnings (section 7A). A third duty, the annual written statement in section 7(4), has been in the Code since 2008 and is still the one most often missing altogether. This page walks the section as it now reads, and names the items that go missing.

Reviewed · Broker AI team

The general duty, before the list

Section 7(1)(a) is the sentence the Ombud quotes most: a provider must provide a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision. Section 7(1)(b) adds that, whenever reasonable and appropriate, the client gets any material contractual information and any material illustrations, projections or forecasts in the provider’s possession. Two things follow that a schedule cannot do on its own:

explain

Explain, not send

The duty is an explanation of the nature and material terms. Posting the wording is delivery, not explanation — the drones case at the FAIS Ombud turned on exactly that, with the exclusion printed twice in a schedule the client had received.

informed

Enough to decide

The test is whether the client could make an informed decision, so it reaches beyond the schedule to anything material you hold — a quote comparison, an insurer’s illustration, the reason a risk was loaded.

The fourteen items in section 7(1)(c)

At the earliest reasonable opportunity, and where applicable, the client must get full and appropriate information of each of these. Item (iii) and items (xi) to (xiii) are investment-shaped and apply to a broker writing life or investment business; on a short-term book the ones that decide complaints are (v), (vi), (vii) and (xiv).

  1. 01(i) the name, class or type of financial product; (ii) the nature and extent of the benefits, including how they are derived or calculated and how they accrue or are paid.
  2. 02(iii) where the product is marketed or positioned as an investment: how the value is determined, separately-disclosed charges and fees (amount, frequency, recipient, what each is for), past performance on request with a warning that it does not indicate future performance, any rebate arrangements (in monetary terms at the earliest opportunity, using the word “rebate”), and any platform fee arrangements (using the words “platform fee”).
  3. 03(iv) the client’s monetary obligations to the product supplier — amount, how and how often paid, the consequences of non-compliance, and any anticipated or contractual escalations.
  4. 04(v) the client’s monetary obligations to YOU: the amount, frequency and payment method, what services you provide in exchange, and the client’s right to terminate those obligations and what happens if they do — “wherever feasible” in a written agreement between the client and the provider. This subparagraph was substituted by the 2020 amendment.
  5. 05(vi) the nature, extent and frequency of any incentive, remuneration, consideration, commission, fee or brokerage payable to you, directly or indirectly, by a product supplier or anyone other than the client — and the identity of whoever provides it.
  6. 06(vii) concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided. This is the short-term broker’s core item.
  7. 07(viii) any guaranteed minimum benefits or other guarantees; (ix) how readily realisable the product or accessible the funds are.
  8. 08(x) any restrictions on or penalties for early termination or withdrawal, and the other effects of terminating.
  9. 09(xi) material tax considerations; (xii) whether cooling-off rights are offered and how to exercise them; (xiii) any material investment or other risks, including the risk of losing capital to market movements.
  10. 10(xiv) for an insurance product with provision for premium increases: the increased premium for the first five years, and thereafter on a five-year basis up to twenty years.

Section 7(1)(d): the form-filling duties nobody reads

Where a transaction requirement — a proposal, an application, a claim form — is completed or submitted, the client must be fully informed:

  1. 01(i) that all material facts must be accurately and properly disclosed, and that the accuracy and completeness of every answer, statement or piece of information given by or for the client is the client’s own responsibility;
  2. 02(ii) that where you complete or submit the form for the client, the client should satisfy themselves that the details are accurate and complete;
  3. 03(iii) of the possible consequences of misrepresenting or not disclosing a material fact, or including incorrect information;
  4. 04(iv) that on request they must be given a copy or written record of any transaction requirement within a reasonable time.
  5. 05And section 7(2): you may not ask a client to sign any form or document unless every detail the client is required to insert has already been inserted. A signed blank is a Code breach on its face.

The two the 2020 amendment added — and the 2008 duty still missed

These are the ones that go missing, because no ordinary workflow produces them by itself. Two were inserted by Board Notice 706 of 26 June 2020; the third is older than that and is worth separating, because it is routinely assumed to be new.

7(3A)

Everything, in writing, after the transaction

Inserted by BN 706 of 26 June 2020, effective 26 December 2020: a provider must, at the earliest reasonable opportunity after conclusion of a transaction, provide the client with all the information referred to in subsections (1), (2) and (3) in writing, to the extent it has not already been given in writing. A conversation that covered every item and a schedule that carries half of them do not discharge this — the gap has to be written down and sent.

7A

Forecasts, illustrations and past performance

Also inserted by BN 706 of 26 June 2020. A past-performance statement is permitted only where the basis of measurement is clearly stated, the presentation is accurate, fair and reasonable, it carries a warning that past performance is not indicative of future performance, and the performance is relevant to the service being rendered. A forecast, illustration or projection must come with clearly stated basic assumptions that have a reasonable prospect of being met, be marked as illustrative and not guaranteed, disclose what it depends on, and warn about the risk of buying or selling on the strength of it.

7(4)

The annual statement — in the Code since 2008

Not a 2020 change: inserted by BN 43 of 14 May 2008. A provider who has advised a client, or renders ongoing financial services, must at least annually give a written statement identifying the products still in existence, with brief current details of the client’s ongoing monetary obligations, the main benefits, and — for anything with an investment component — the value and how much of it is accessible. For a short-term book this is the annual review letter; for many brokers it does not exist as a document at all.

Where the file falls short

The recurring shapes, each mapped to the subparagraph that was missed:

  1. 01Commission never stated in rands — (vi) asks for the nature, extent and frequency, not the fact that commission exists.
  2. 02The broker’s own fee agreed verbally — (v), as substituted in 2020, wants the amount, the frequency, the method, the services in exchange and the termination rights, in a written agreement wherever feasible.
  3. 03Excesses and waiting periods left to the schedule — (vii) asks for concise details of them, which means told, not merely printed.
  4. 04Premium escalation on a life product not projected — (xiv) asks for five years, then five-yearly to twenty.
  5. 05A proposal form signed blank “to save time” — a direct breach of 7(2).
  6. 06No written wrap-up after inception — 7(3A), the commonest of the two 2020 misses.
  7. 07An illustration or a past-performance figure with no stated assumptions and no warning — 7A, the 2020 addition almost nobody has noticed.
  8. 08No annual statement to an advised client — 7(4), which has been in the Code since 2008.
  9. 09Nothing in the file to show any of it happened — section 3(2) requires the records for five years, and section 9(2) requires the client’s copy of the Record of Advice.

Making it routine

The practical shape that satisfies section 7 without adding a form to every conversation:

  1. 01A disclosure page in the Record of Advice that runs the 7(1)(c) items applicable to the product, so the explanation and the record are one document.
  2. 02A written post-inception wrap-up sent as a matter of course — the schedule plus the items the schedule does not carry (your fee, your commission, the escalation, the exclusions you discussed). That is 7(3A) done.
  3. 03A standing rule that any illustration or past-performance number leaves the office with its assumptions, its warning and its relevance stated. That is 7A done.
  4. 04An annual review letter listing the products, the premiums, the main benefits and anything with a value. That is 7(4) done, and it is also the moment to reconcile sums insured against average.
  5. 05A blank-form rule: no signature on anything with an empty field.
  6. 06And keep all of it for five years, per section 3(2).

Put the disclosures in the advice record itself

Broker AI drafts the Record of Advice with the section 7 disclosures for the product in front of you — the exclusions, excesses and waiting periods, your remuneration, the escalation — so the explanation, the record and the client’s written copy are the same document.

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Frequently asked questions

Does giving the client the policy wording satisfy section 7?
No. Section 7(1)(a) requires a reasonable and appropriate general explanation of the nature and material terms, and full and frank disclosure of what the client needs to decide. Delivery of a document is not an explanation, and section 7(1)(c)(vii) asks specifically for concise details of exclusions, waiting periods, excesses and restrictions.
Must commission be disclosed in rands?
Section 7(1)(c)(vi) requires the nature, extent and frequency of any commission or other valuable consideration payable to you, and the identity of whoever pays it. A percentage with no monetary illustration rarely conveys the extent; where a fee is charged to the client, 7(1)(c)(v) additionally wants the amount, frequency, method, the services given in exchange and the termination rights.
What did the 2020 amendment change about disclosure?
It substituted 7(1)(c)(v) — the client’s obligations to the provider, in a written agreement wherever feasible — and inserted two new provisions: 7(3A), which requires all of the section 7 information to be given in writing at the earliest reasonable opportunity after the transaction is concluded, and 7A, which governs forecasts, illustrations, projections and past-performance claims. The annual statement in 7(4) is often assumed to be one of the 2020 changes; it was inserted in 2008.
Do I have to send clients an annual statement?
Yes, where you advised them or render ongoing services on products still in existence: section 7(4) requires a written statement at least annually with their ongoing obligations, the main benefits and, for investment components, the value and how much of it is accessible. It has been in the Code since 2008.
Can a client sign a blank proposal form?
No. Section 7(2) forbids asking a client to sign any form or document unless every detail the client is required to insert has already been inserted.
Who is responsible if the client’s answers are wrong?
The client — but only if you told them. Section 7(1)(d) requires you to inform the client that accuracy and completeness are their responsibility, that they should check anything you complete on their behalf, what the consequences of misrepresentation or non-disclosure are, and that they can request a copy of the transaction requirement.

This page is general information about the FAIS disclosure duties, not legal or compliance advice. Section references are to Board Notice 80 of 2003 as amended to Board Notice 706 of 26 June 2020 (most 2020 amendments effective 26 December 2020); check the current text before relying on it.

Sources

  1. 01General Code of Conduct, Board Notice 80 of 2003 as amended to Board Notice 706 of 26 June 2020 — section 7 in full (7(1)(a)–(d), 7(2), 7(3), 7(3A) and 7A as inserted by BN 706 in 2020, and 7(4) as inserted by BN 43 of 14 May 2008), with sections 3(2) and 9(2) (consolidated text hosted by Masthead)
  2. 02Financial Advisory and Intermediary Services Act 37 of 2002 — section 18, Maintenance of records
  3. 03FAIS Ombud — case summary FAIS-85770-24/25, inappropriate advice and disclosure (an exclusion printed twice in the schedule, and still not explained)