In a 74-page determination, the FAIS Ombud sets out in detail why she found it necessary to implicate not only the advisor, but also the directors of Blue Zone in a complaint from a Mr Gerber after investing in a property syndication scheme called Copper Sunset Trading 239 Ltd.
Neither Bluezone, nor its representative, in this case, were licensed to market this type of product at the time the transaction took place.
“…the financial product in question is classified as unlisted shares and debentures in terms of the FAIS Act. Bluezone was only granted a license to render financial services in respect of this product during November 2008. Thus, in March 2008, when the financial service was rendered to complainant, Bluezone did not have the necessary license and could therefore not accredit any other person to render financial services in this regard. This simply means, when first respondent rendered the financial service to the complainant, he was acting illegally. “
The Ombud provides extensive details concerning the advisor’s non-conformance to requirements when providing the service to the client. This in itself is almost a blueprint of what you should not do.
There is one critical aspect from this determination which may have future implications for key individuals – What are the consequences of the roles played by the directors as licensed financial services providers, product providers and principals in terms of section 13 of the FAIS Act?
The findings published at the end of the determination provide a brief synopsis of how the Ombud views these actions:
(a) First respondent (the section 13 representative) violated the Code in that he failed to appropriately advise the complainant;
(b) The conduct of the first respondent, as a “section 13 representative” of Bluezone is attributable to the second to fifth respondents, the directors of the company.
(c) The second to fifth respondents failed to exercise supervision over the first respondent as required in terms of section 13 of the FAIS Act,
(d) The loss suffered by complainant was as a direct result of respondents’ conduct;
(e) All respondents violated the Code in not disclosing the material terms of the Bluezone investment;
(f) All the respondents showed complete disregard of the law in rendering the financial services to complainant;
(g) Second to fifth respondents violated the Companies Act and Notice 459 of the Gazette 28690.
(h) The question is not whether complainant might recover some monies in future out of the investment made in Bluezone, but whether the advice was appropriate, bearing in mind his needs and risk profile. The first respondent gave advice that was inappropriate (as an agent of his principal). The directors of Bluezone must, consequently, be held responsible.
There can be no doubt that this holds serious implications for all FSPs with representatives. In the recent Van Vuuren determination, a similar view was held – the key individual was held liable for client losses resulting from advice given by a representative who had resigned after selling the policy, but prior to the complaint being laid.
This is nothing new, but acts as a gentle reminder that proper supervision gives credence to the saying: prevention is better (cheaper?) than cure.
Click here to download the full determination.