Secondary

And Justice for All

In Monday’s Moonstone Investment Indicators we discussed a recent determination by the FAIS Ombud, with specific reference to the appeal by the respondent for the opportunity to lead evidence and cross question witnesses. We undertook to discuss the calculation of the fine imposed, and also reflect on other such determinations.

The basis on which the Office of the Ombud operates is described as follows: “The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner…’

In a democracy, one would assume that “fair” in this sense would apply to both parties – the complainant and the respondent.

This same determination continues: “That such complaints should be dealt with in an economical and expeditious manner stands to reason, and to this end the legislature has seen fit to prescribe a detailed list of disclosure and record keeping requirements that must be complied with when rendering a financial service.”

Whilst it is not fair to expect the consumer of financial products to maintain the same detailed account of events, one wonders if selective memory loss on the part of the client does not in some instances tip the scales of justice away from centre.

Something that concerned me of late is the awarding of penalties against advisors where the quantum of the loss is not readily determinable. In the Jansenns case referred to above, the Ombud is at pains to describe how the amount to be refunded is calculated. She even goes as far as to exclude the loss due to currency fluctuation in her calculations.

There are two other factors which, it seems, she did not take into account: the penalty charged by the product house for early termination of the contract (of which she was informed) and the fact that the client ended the investment against the advice of the advisor.

The question is whether the calculation can be seen as fair to both parties?

In another determination (“Schmidt”) it is ruled that the respondent has to refund the amount invested by the clients in a Sharemax scheme. Although they only received an income for three months and a bit (up to August 2010), no provision is made for the loss between this time and the time of the determination, two years later.

Of greater concern is the way in which the quantum of the loss is determined. There is no clarity on the final outcome of the Sharemax saga, so determining a client’s loss accurately is impossible. In the final determination, the Ombud says:

“They have not been paid income since August 2011 and have by all indications lost their capital.” Apart from the discrepancy in the dates (2010 versus 2011), the reasoning behind the calculation is, at best, not based on fact.

In previous determinations, notably certain of the Deeb Risk determinations concerning Sharemax investments, the Ombud also determined that the complainants should be refunded their investments, but added the following rider:

“Complainants are to hand over, upon full payment, all documents and securities, forgo any rights or interest pertaining to the investments (in) The Villa in favour of respondents;” This is almost like saying to the advisor: you sold the stuff, now you live with the consequences.

This rider is not added to all the cases involving Deeb Risk, who is seeking relief from the determinations against him in the high court. I was unable to find grounds for the different decisions made by the Ombud where investments in Sharemax’s The Villa were concerned.

If the workings of the Ombud is to be seen as “…procedurally fair, informal, economical and expeditious…” then it should be experienced as such by all parties.

Or, as Eleanor Roosevelt put it: Justice cannot be for one side alone; it must be for both.

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