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Momentum's response to recent determinations and media reports

12 June 2013

Following recent coverage in the media as a result of determinations by the FAIS Ombudsman and the Pensions Fund Adjudicator (PFA), it is appropriate for Momentum to clarify the issues raised.

Application of the Statement of Intent

The Statement of Intent was signed by insurance companies in December 2006. The agreement put in place rules on how insurance companies should treat charges levied in respect of causal events (which include early terminations, withdrawals, premiums cessations and premium reductions) that occur during the lifetime of policies taken out between January 2001 and January 2009. The Statement of Intent effectively prescribes the maximum amounts that can be charged against a policy in respect of causal events, and the recent media coverage focused on these charges.

The large majority of policies affected by the Statement of Intent only have one causal event during their lifetime. For these policies the conditions of the Statement of Intent are clear and Momentum has applied them accordingly since we signed the Statement of Intent.

There are a very small number of cases where there is more than one causal event on a policy and in these instances the Statement of Intent is not clear. For these policies, it seems that some life insurance companies and actuaries have used different interpretations of the stipulations of the Statement of Intent to calculate maximum causal event charges.

Momentum currently follows a manual process to identify these cases where there is more than one causal event, to ensure we apply our interpretation of the Statement of Intent correctly and treat our clients fairly. The recent media coverage has highlighted the need to standardise the different interpretations in respect of multiple causal events. We are therefore in discussions with the appropriate stakeholders to agree on a standard interpretation.

For policies written since 2009 (after the introduction of a new commission dispensation) Momentum has simplified the product design and does not levy any charges on causal events that involve premium reductions or premium cessations, which means that the aspects discussed above do not arise.

Transparency in calculating and communicating costs

Before 2009, insurance companies paid upfront commission to financial advisers (on behalf of clients) for the advice they provided to their clients. The pre-2009 policies' design then provided for the recovery of the upfront commission over the lifetime of the policy. The recent PFA determination in respect of one particular Momentum policy is related to the recovery of commission.

The mechanism to disclose the way in which upfront commission is recovered differs between life insurance companies. In the case of this particular Momentum contract, our objective was to enable clients to monitor the recovery pattern in a simple way. We therefore utilised a mechanism that used the familiar concepts of a loan and interest to reflect the way in which the upfront commission payment was recovered over the lifetime of the policy.

The recent PFA determination on this particular policy was limited to a disclosure concern in respect of one aspect of the commission recovery mechanism. It does not question the fairness of the mechanism itself, which we believe is sound. We continue to improve our disclosure practices to become even more meaningful and appropriate for our clients.

The role of financial advice

As Momentum we believe appropriate financial advice forms an important part of the financial planning process. Financial advisers, whether tied or independent, perform an integral role in the financial services industry, and in general are trusted professionals acting in the best interest of their clients. The majority of new business into the industry is introduced by advisers and they contribute positively to the level of savings and protection in the industry and help ensure the financial wellness of South Africans.

Momentum takes responsibility for the advice that our tied agents provide to clients and the relationship with clients is governed by the FAIS Act. The relationship between independent advisers and their clients is also regulated under the FAIS Act. Independent advisers are therefore responsible for ensuring compliance with this Act. As a company that looks out for the interests of its clients, we do our utmost to ensure that we only deal with reputable advisers, who provide sound advice to their clients.


Momentum recognises that we are the custodian of our clients' financial wellness and our purpose is to help them achieve this. We are committed to becoming a truly client-centred company and our new generation policies are created in line with this objective and demonstrate our commitment to transparency as well as the principles of Treating Customers Fairly. We will continue to strive for excellence, accountability and transparency in dealing with our clients, to help them realise their financial wellness goals.

Mark van der Watt
CEO: Momentum Retail

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