Furnishing advice for sectional title schemes

“The insurance advice process in the sectional title environment is even more important”.

Question:

The FAIS Act (Financial Services and Intermediary Services Act) applies to all financial advice. How is it that the dispensing of sectional title advice can be more important than other advice?

Answer:

Firstly, there is a longer chain between the insurer and the insured in the sectional title environment. It could be as long as: Insurer to underwriting, agency to insurance, advisor to managing agent to trustee to owner to tenant to sub-tenant.

There could be as many as seven affected parties, and in a claim scenario, there could be more, including a loss adjuster and the contractors. It must be understood that the intermediary is responsible for the advice given and the trustees for the advice received. Usually, there are managing agents representing the body corporate, and the body corporate is represented by the trustees.

The client

So, the client is, in fact, the body corporate. The trustees (acting for the body corporate, being the collective of owners) ultimately need to make a decision based on the advice, and the financial advisor is responsible for maintaining a record of the advice dispensed to the client.

The importance of written advice

We believe that there can be no other way to best meet the minimum requirements of FAIS other than to provide the body corporate with written advice. As the policies are mostly short-term, this advice needs to be dispensed annually. A Letter of Advice (LOA) should be sent to the body corporate annually, shortly before the policy renews. There can thus be no advice lost in translation or disputes about what was said.

Dealing with insurance 

Secondly, the advice is being dispensed to trustees on behalf of others. Besides the fact that the Sectional Titles Act compels the trustees to deal with the insurance of the body corporate, the trustees are acting on behalf of others, and therefore, they need to be mindful of the collective needs of the community. Being collective, the size and nature of the risk is also much larger.

Including the LOA in the minutes

Thirdly, as the broker is obliged to deal with their client by the General Code of Conduct for Authorised Financial Services Providers and Representatives, FAIS (Financial Advisory and Intermediary Services) legislation, the trustees need to ensure that the body corporate receives the advice.  We suggest that the minutes of the trustees’ meeting where the annual policy renewal is discussed and decided upon should be filed with specific reference to the LOA (Letter of Advice), or better still, filed together with the minutes themselves.

Trustees must ensure that when they receive advice, and at least annually on policy renewal, the body corporate is provided with a written copy of the advice. In terms of the Code of Conduct, the advice should meet certain criteria, e.g. reflect the basis on which the advice was given, including a summary of the information and material, the financial products that were considered and the financial products selected, with an explanation of why the selected is being recommended.

Responsibilities

This important FAIS legislation, coupled with the clear requirements of the Sectional Titles Act and prescribed rules, places responsibility on the financial advisor and trustees. The managing agent is not excluded from the responsibility but rather, a key party in the process.

Addsure’s ATON system

Addsure’s ATON system is advice-driven, with each body corporate receiving concise written advice in electronic format with links to more detailed advice. This LOA (Letter of Advice) meets the requirements above and is specifically laid out to match prescribed rule requirements.

This LOA can be printed, emailed or stored electronically on websites for trustee discussion and record.  The LOA is usually dispensed together with the renewal pack, including comparative quotations, a summary of quotations and analysis and the claims history.

Addsure also assists the body corporate by compiling a draft SRV (Schedule of Replacement Values) in the standard recommended format. This is also usually included at renewal time.