One of the first determinations by the FAIS Ombud concerned a complaint against an advisor who said, in her defence, that she did not place a client’s funds in an investment that went belly-up. She merely told the complainant, around the braai about an investment, and who to contact.
A very similar defence was put forward by the respondent in the most recent determination published by the Ombud. In this instance, the investor was told that his money would be doubled in three months. Like the song says: “When will they ever learn?”
The respondent states that, during a conversation with the complainant, he mentioned to the complainant that he had entered into a favourable investment opportunity that he (respondent) was happy with. According to the respondent, the complainant expressed interest in the investment opportunity. The respondent asserts that he did not have the relevant knowledge, skills and experience necessary to advise the complainant appropriately on any matters relating to the specific structure of the investment. Consequently, the respondent referred the complainant to the persons that were able to execute and advise on the transactions, namely van Deventer of DTME and Nel of Phoenix Global Finance (‘Phoenix’). According to the respondent van Deventer was in the business of investing funds on behalf of clients in bank guaranteed structures.
One of the issues that the Ombud considered was whether the respondent gave advice or rendered intermediary services to the complainant.
The respondent is adamant that he neither gave advice, nor rendered any intermediary service to the complainant.
Advice is defined as follows in section 1 of the FAIS Act.
‘advice’ means, subject to subsection (3) –
‘(a) any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients-….
(c)….irrespective of whether or not such advice-
(i) is furnished in the course of, or is incidental to financial planning in connection with the affairs of the client;’
Add to this the fact that the respondent was the client’s financial advisor for 5 years, and that the information was passed on shortly after he assisted the client in successfully submitting a dread disease claim. This indicates that his role in the toxic investment was more than that of a mere messenger. Furthermore, the R300 000 payment from the client was processed through the account of the respondent, which was deemed as an intermediary service by the Ombud.
It is now more than three years since the investment was made. It is unlikely that the complainant’s capital would be recovered. Had it not been for the advice of the respondent, the complainant would not have invested in DTME. The respondent’s conduct is the direct cause of the complainant’s loss. I therefore intend to make an order in the amount of R300 000.
In view of the above, the Ombud determined that the investment amount should be refunded. She also ordered the respondents to pay interest at the rate of 15.5 %, per annum, from 1 December 2009 to the date of final payment.
We have pointed out this shortcoming in previous articles. Despite the need for expediency in resolving complaints, many cases take years to finalise. Merely refunding the amount invested does not compensate the client for the loss of interest, had the money been in his possession.
It is interesting to note that there is no mention of further steps against the “product providers”, DTME and Phoenix Global Finance. It appears that they managed to do a Houdini trick with a ‘Bank Guaranteed’ investment. It may well be that this will be referred to the FSB, who will in all likelihood pass it on to the Banking Ombud. Personally, I think that it needs to be referred to the fraud squad.