In 2017 the FAIS Ombud made a recommendation that a respondent pays R400 000 to a complainant. This outcome was the result of the breach of the General Code of Conduct, specifically in violation of the following:
- The respondent was out of his depth when he recommended the investment to the client
- The respondent’s advice was negligent and in violation of his duty
- The respondent paid no attention to the client’s personal circumstances when he considered the investment
- The client was not advised of the risk involved in the product
The respondent, therefore, failed to appropriately advise the client in terms of section 2, 3(1) (a) (vii), 7 (1), 8 (1) (a) to (c) and 8 (2) of the Code.
The respondent did not accept the recommendation and the matter was referred back to the Ombud for final determination in the light of new information supplied by the respondent.
The initial investment
During January 2008 the complainant, then aged 50, followed the advice of the respondent and invested R400 000 in the Zambezi Retail Park Holdings Limited, a property syndication scheme promoted by Sharemax. The funds invested were the complainant’s inheritance from her late husband and were earmarked for her son’s university fees.
The complainant initially received the monthly promised returns. However, around September 2010 the income suddenly stopped. The complainant made attempts to resolve the matter with the respondent, to no avail.
The respondent’s reply to the Ombud’s recommendation
In his response, the respondent did not deal with the findings that the advice rendered to the complainant was inappropriate. Instead, the respondent claimed that he was not liable for the losses suffered, and tried to shift this responsibility to the key individuals of another FSP, where he was an independent broker, at the time of rendering the advice.
Of further relevance is that in respect of the license of the first respondent, the second respondent was only authorised to sell short term insurance, and not to sell category 1.8 (shares) or 1.10 (debentures) products.
Why was the respondent’s argument not sustainable?
- Section 5 of the General Code of Conduct deals with disclosure of information to a client concerning the financial services provider, in other words, the provider on whose behalf a person is acting. No disclosure documentation as required by section 5 was provided to the complainant or to the Ombud’s office. All documentation was on the letterheads of the respondent and not the FSP where he was listed as an independent broker. The complainant also confirmed that she was not informed that the respondent was acting in his capacity as an independent broker or representative of another FSP.
- It was also confirmed that nowhere in the independent broker agreement was it stated that the FSP takes responsibility for the action/advice rendered by the independent broker. In fact, the agreement explicitly states that FSP will not be liable for any loss or damage that may be suffered as a result of deliberate, negligent or incomplete advice provided on any business.
- A representative is defined in the FAIS Act as: “any person, including a person employed or mandated by such first-mentioned person, who renders a financial service to a client for or on behalf of a financial services provider, in terms of conditions of employment or any other mandate….” It is a common cause that the respondent did not have a license to market shares and debentures products. As provided for in section 13 of the FAIS Act, representatives would be allowed to market products subject to a supervisor’s guidance, but no documentation has been provided confirming that the second respondent was acting under the supervision of the second FSP.
- Even if an argument could be made that a representative agreement existed and the respondent was in fact appropriately licensed and acting under supervision, the advice he rendered was still negligent and not in the best interest of his client.
The Ombud’s determination
The complaint was upheld and the respondents were ordered to pay the complainant, jointly and severally, the one paying the other to be absolved the amount of R400 000.
Click here to download the initial recommendation.
Click here to download the FAIS Ombud determination.