Financial advice ombud Noluntu Bam refuses to be cowed by the legal manoeuvring of the broader financial services industry, which is attempting to stop her handing down determinations in favour of consumers who have been mis-sold products or given bad advice.
Bam issued two determinations this week that showed she will not hold back in coming to the rescue of people she decides have been given a raw deal.
The determinations came against the background of a High Court application by financial adviser Deeb Risk, backed by a high-power legal team provided and paid for by Santam, who has challenged the right of the Office of the Financial Advisory and Intermediary Services (FAIS) Ombud to issue determinations in cases such as those involving Risk and his financial services company.
Santam is financing the court case because it provided the professional indemnity insurance to Risk that requires it to provide legal assistance. Santam, however, faces potential claims for hundreds of millions of rands from financial advisers who mis-sold property syndications and other high-risk investments that have imploded.
Judgment on the application is awaited.
The still-to-be decided case has not stopped at least one other adviser, Anthony Priday and his company Lifeforce Financial Services of Sea Point, Cape Town, from also wanting Bam to refer a compliant against him to the High Court, because “there is a material dispute of fact …” that needs to be resolved by way of cross-examination and the leading of evidence (see “Cape Town adviser must repay client over R600 000”, below).
Bam says in her determination against Priday and his company that the “objective of the ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner ...
“The requirement that the service be economical and expeditious has particular resonance when one considers that legitimate complainants may already have suffered a considerable economic loss, thereby depriving them of the means of accessing the courts, that is even assuming that they were in such a financial position in the first place.
“In fact, many of the complainants to the office are pensioners or individuals in the late stages of their working life. They may be in no position to make up such losses.”
Bam says that complaints involving a loss of capital and income that may lead to considerable economic hardship either now or in the future should be dealt with economically and expeditiously.
This was the intent of Parliament in approving the FAIS legislation, the ombud says.
Cape Town adviser must repay client over R600 000
The financial advice ombud, Noluntu Bam, has ordered Cape Town financial adviser Anthony Priday and his company Lifeforce Financial Services to repay an investment loss of R635 074 because he failed to provide appropriate advice.
The compensation order follows a complaint by Ms DHJ that Priday and his company had placed R2 million in an Old Mutual International life contract issued by Old Mutual Guernsey in April 2008, which had “higher than acceptable risk”. Ms DHJ says that she wanted the money to be warehoused as an interim measure in an investment with minimal risk to capital.
Instead it was invested in two Old Mutual funds with an initial value of 161 135 euros, split into 60 percent in euros and 40 percent in pounds. By April 2009, when she withdrew the money, it was worth 99 002 euros.
Ms DHJ says Priday had not complied with her instruction that she wanted all the money in euros and no investments in equities. Instead the money, which was required for the purchase of a property in Europe, was invested in two Old Mutual balanced funds containing up to 60 percent in equities.
Ms DHJ says her investment was “devastated by commissions and fees” of 2.5 percent of the initial investment and then 0.5 percent a year, which were never agreed to by her, and the exorbitant costs of the products were never disclosed to her.
She also claimed that she never received any record of advice from Priday and that the risk profile analysis reflecting her as a moderate- risk investor was completed without her knowledge.
Priday says Ms DHJ presented him with the fact sheets of the funds, which he claims matched her risk tolerance. She says the fact sheets related to her mother’s estate.
But Priday accepted that his record of advice did not go into great detail but contended that “it cannot be said that his failure to keep records caused any financial loss”, which was caused by the global credit crunch of 2008.
Bam says the Old Mutual website describes the products as being medium- to long-term investments and there was no way they should have been recommended without first reaching agreement on the term of the investment.There was also no mention in the record of advice on when the property would be bought.
Also, if the property was to be bought in Europe, then the currency used should be the euro.
The record of advice also made no mention of the actual underlying products in the life assurance account or the risk levels of the products.
Bam says although Priday provided a risk profile, “risk profiling in isolation is meaningless without understanding a client’s objectives (and) needs” and aligning them. She says potential risks, such as those of the 2008 downturn, need to be disclosed to an investor at the decision-making stage and “not only become apparent when there is a downturn”.
Bam found that “there is almost no record whatsoever and certainly no reference to the fact sheets (of the Old Mutual portfolios) in any correspondence or disclosure records” that support Priday’s version of events.
This, she says, is a violation of the code of conduct of the Financial Advisory and Intermediary Services (FAIS) Act.
She says that while the commissions and advice fee were set out in percentages, they were not declared in monetary terms as required by the FAIS code.
Bam says she had no option but to accept Ms DHJ’s version of events because the FAIS Act requires disclosures to be “provided in plain language, avoid uncertainty or confusion and not be misleading”.
She says the lack of appropriateness of advice is “most telling”, particularly how Priday could advise on investments in the Old Mutual funds with a longer term structure requiring initial and ongoing fees without even establishing when the money would be required.
The fundamental purpose behind the investment was to house the money in a safe manner for a property purchase, Bam says.
Adviser ‘did not comply with Act’
Financial adviser Christoffel Johannes Nel and his company, Status Insurance Brokers, of the KwaZulu-Natal South Coast, have been ordered to repay R320 000 to a retired couple, Mr and Mrs S, whom he advised to invest in an imploding Sharemax property syndication.
Before the complaint was submitted to the financial advice ombud, Nel offered to purchase the investment from the couple, but he then reneged on the offer. The R320 000 amounts to half of the couple’s retirement capital.
The ombud found that:
* Nel was not licensed to give advice on property syndication investments;
* His claim that the couple had “merely” asked him to execute the investment and that he did not provide advice could not be supported by the evidence, particularly as he was paid a commission of R21 188 by Sharemax; and
* Nel did not comply with the Financial Advisory and Intermediary Services Act and its code of conduct in that he did not keep proper records of advice, particularly on the suitability of the investment; he failed to act with due skill, care, diligence and in the best interests of the couple; and failed to disclose costs and the risk inherent in the investment.