In one of the most important findings by the Appeal Board of the FSB, an appeal against a finding by the FAIS Ombud was upheld.
The Ombud’s findings
Some of the relevant findings by the Ombud include:
- The Appellant had rendered advice which was inappropriate;
- The Appellant was involved in the entire process in respect of the investment and he even accompanied the complainant to the presentation (second);
- The Appellant failed to exercise due diligence skill and care as contemplated in Section 2 of the General Code of Conduct;
- The Appellant made no independent analysis of the investment. He merely relied on the presentations made by Pretorius and his team. The Appellant specifically made no attempt to consider the financial statements of Abante.
- The Appellant sold and actively promoted Abante/RVAF and in so doing, he rendered advice.
- The Ombud maintained that the investment was one that was considered to be a “financial product” as envisaged in terms of the FAIS Act.
Appeal Board Analysis and Findings
“It is settled law that the Ombud derives its authority to adjudicate complaints by virtue of Section 20(3) of the FAIS Act and more specifically in respect of the Rules on Proceedings of the Office of the Ombud for FSPs, 2003 (“The Rules”) which define the type of complaints justiciable by the Ombud. Only if such complaints fall within the ambit of the Act and the Rules, may the Ombud adjudicate thereon. Simply put, only complaints where “advice” is rendered in respect of a “financial product” as defined in the FAIS Act fall within the Ombud’s authority.”
The Appeal Board elaborates as follows on the definition of advice as contained in the FAIS Act:
- In order to qualify as advice, there should be some “recommendation”, “guidance” or “proposal”.
- A “recommendation” is an idea or suggestion that has been put forth to a client with approval as being suitable for a particular purpose. A client is directed to do something with regard to a particular plan of action which is desirable or appealing in some way. Words such as “I advise”, “I strongly advise”, “I recommend”, “I would suggest” are generally used in making a recommendation.
- “Guidance” is normally given in situations where the aim is to resolve a problem or a difficulty.
- A “proposal” relates to a situation where a plan or suggestions or ideas are put forward for consideration.
- The recommendation or guidance must further be of a financial nature. If a client takes “advice” it would have financial consequences on him or her. However, in the instance of the FAIS Act, it must be “advice” in respect of a financial product.‘
The Appeal Board then specifically refers to the FSB press release dated August 10, 2012 and lists various schemes which fall outside the FSB’s regulatory net:
“…certain investments may not always involve a financial product as contemplated in terms of the FAIS Act. For instance, if one becomes a member of an investment club or a beneficiary of a trust, it is not an acquisition of a financial product by the investor even though the monies invested may be used by the investment vehicle to acquire a financial product; for example, a share or derivative instrument.”
On this matter, the Appeal Board concludes:
“It is quite clear that in this instance Pretorius had done everything in his power to circumvent the FSB by tailoring the product in such a manner that it fell outside the FSB regulatory rules. It is clear that the Respondent had become a partner in a partnership which partnership invested in various instruments including securities and the mandate in order to do the investment is given to an investment manager who earns a performance fee.”
“It was therefore not a product that constituted a “financial product” as defined in Section 1(1) of the FAIS Act. There is no doubt that the Appellant had recommended the product. However, the following enquiry is crucial:
23.1 Was it objective factual advice?
23.2 Was it advice in terms of a financial product?”
The Appeal Board then concludes:
- The FSB confirmed that Pretorius was acting as a product supplier (principal) when interacting with potential investors.
- The complaint in issue does not concern a “financial product” in terms of the FAIS Act and this falls outside the ambit of the FAIS Act and the Rules. The FSB had expressed that the RVAF falls outside its regulatory net.
- At this juncture, the panel need not make a conclusive finding on the extent of the advice given by the Appellant. The Appellant maintains that it was factual objective advice. Consequently this Appeal Board has no authority to review a decision which should not have been considered and dealt with by the Ombud. This Appeal Board is also a creature of the FAIS Act. It may perform no functions and exercise no power except that conferred upon it by law.
- It is therefore not necessary to deal with the rest of the issues in dispute. The Respondent’s remedies lie in launching an application to the High Court and FSB has encouraged investors like herself to do so and she should pursue such process
- The appeal against the Ombud determination is upheld.
Please click here to download a copy of the Appeal Board finding.