Advisers can’t rely on a power of attorney

Discovery Health Medical Scheme (DHMS) will not be able to deny membership to applicants whose previous membership of the scheme was terminated because of fraud or non-disclosure.

This follows a ruling by the Appeal Board of the Council for Medical Schemes upholding a decision by the council not to approve an amendment to the scheme’s rules.

DHMS had sought to amend its rules to allow it the discretion to decide whether or not to re-enrol a former member whose membership was terminated because the member had abused benefits or privileges, submitted false claims or otherwise committed fraud against the scheme, or had helped someone to do so.

The Medical Schemes Act provides for schemes to terminate your membership under these conditions. You must then be placed in the same position you would have been in had you never joined the scheme: your contributions must be paid back and all claims paid by the scheme on your behalf must be reversed.

The Act does not distinguish between fraud and non-disclosure, where you omit to disclose material information without intending to commit fraud.

DHMS had sought to amend its rules in 2014 to be able to deny re-enrolment for up to three years under such conditions, but wanted its rules to reflect that it would re-enrol you if it was satisfied there was no intention on your part to commit the act for which your membership was terminated. It argued that allowing members whose membership was terminated to enrol again the very next day is, in effect, no sanction at all.

The Registrar of the Council for Medical Schemes found DHMS’s application to amend its rules to be inconsistent with the Medical Schemes Act, which states that anyone who applies to join an open scheme may not be denied membership. (DHMS is an open scheme.)

The Act also says schemes may only impose a general waiting period of three months and/or a condition-specific waiting period of up to a year when you change schemes, depending on your years of membership and whether you join or rejoin a scheme within three months.

DHMS initially appealed to the Appeal Committee, which upheld the registrar’s decision not to approve the amendment. The scheme then turned to the Appeal Board. The board, chaired by Judge Bernard Ngoepe, upheld the appeal, saying that DHMS’s rule amendment would introduce a waiting period not provided for in the Medical Schemes Act.

OPTIONS DENIED

The Council for Medical Schemes this week published a circular stating that it had denied the approval of seven options that Fedhealth and one that Resolution Health had planned to introduce next year. A number of options with discounts for members who use certain networks are also still subject to approval following an application for exemption from the Medical Schemes Act. These must be considered by the full council. Your financial adviser cannot rely on a power of attorney to make investment decisions on your behalf. In terms of the Financial Advisory and Intermediary Services (FAIS) Act, promulgated in 2002, the authorisation must be in the form of a written mandate that complies with specific requirements as set out in the Act and its accompanying codes of conduct, signed by you. And your adviser must be licensed as a discretionary financial services provider registered with the Financial Services Board (FSB).

Lize de la Harpe, the legal adviser at Glacier by Sanlam, says a power of attorney is not a contract but rather an “expression of will”, which gives a person appointed by you certain powers to act on your behalf in legal and financial matters. Until the FAIS Act was promulgated, it was common practice to use a power of attorney to authorise an adviser to manage your financial affairs.

However, to protect you, the FAIS Act places additional obligations on financial advisers and companies that provide financial products.

De la Harpe refers to chapter two of FAIS, which deals with, among other things, the authorisation of financial services providers. She says the Act makes it clear that a discretionary financial services provider (an adviser) may render advice to you only if authorised to do so and appropriately licenced. Furthermore, an adviser must be appropriately licensed to conduct financial-service-related business with a provider such as a life assurance company or asset manager.

For example, if an adviser suggests putting your money into an endowment policy with a life assurance company, the life assurer can deal with your adviser only if your adviser is licensed, through the FSB, to render that type of service. (There are various categories of financial services provider licence, which cover different types of financial products and investments.)

These obligations are further defined in the Code of Conduct for Administrative Financial Services Providers, issued as a government notice in 2003, which requires product providers to obtain a signed mandate either directly from you, the client, or through your adviser. (An administrative financial services provider is one that administers financial products – typically banks, life assurers and asset managers.)

The code of conduct says that, if you are dealing with the administrative financial services provider through another person (in other words, your adviser), the said mandate must, among other things:

• State the name of the person acting on your behalf;

• State whether that person is an authorised financial services provider;

• State whether that person is appointed with full or limited discretion and, where the discretion is limited, indicate those limits; and

• Authorise the administrative financial services provider to accept instructions from that person, given on your behalf.

Thus, the administrative financial services provider, De la Harpe says, may not process any transactions on your investments without obtaining instruction from directly from you or via a mandate authorising the adviser to transact on your behalf, with either full or limited discretion.

“This means your adviser has to be appropriately licensed and enter into an FSBapproved mandate with you in order to exercise discretion regarding investment decisions,” De la Harpe says.