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Was this advice given, taking due care and diligence? You be the judge

Justice delayed is justice denied. A recent determination, which resulted in the matter being referred to the Tribunal, underlines the validity of this old saying.

A brief glance at the latest determinations published on the FAIS Ombud’s website reveals that investment related determinations hog the limelight. The last short-term case dates back to 2018.

What is particularly disturbing, as in most other property syndication complaints, is the fact that most of these cases date back ten years and more. Despite protestations by the office of the Ombud that there was a moratorium following the finding of the High Court against a determination against the directors of Sharemax, determinations are made in drips and drabs.

The case we discuss below probably exemplifies best the horrors experienced by susceptible and highly vulnerable elderly people.

The case in point

Mrs Maria Cecilia Terblanche was 80 years old when her Financial Adviser advised her to invest R700 000 in Realcor, a property syndication scheme. Soon after making the investment, on 16 April 2010, Realcor was placed under liquidation. Her funds were lost, and no part of her capital was ever paid back to her. This was apart from two other syndication investments he instigated which also went belly up.

At the time of the advice, Mrs Terblanche was already suffering from an advanced state of Alzheimer’s Dementia, with two medical reports confirming her condition. The high court also granted an order appointing a curator to take care of Mrs Terblanche’s affairs and day to day requirements.

According to the FAIS Ombud notes, the daughter of Mrs Terblanche, as the executor of her late mother’s estate, filed the complaint.

The complaint

“At about the time the Realcor investment was made, Mrs Terblanche had deteriorated to the point where she could no longer recognise her own daughters’ voices on the telephone,” the FAIS Ombud notes confirms. Furthermore, the difficulties experienced by property syndication schemes was well publicised. Despite having knowledge of this, her mother’s Adviser, whom she has known for many years, went ahead and sold the Realcor investment to her aging mother who was “an eighty-year-old very sick and stressed out woman”.

In this specific case, the husband of Mrs Terblanche confirmed that he had signed the deal to invest in Realcor on behalf of Mrs Terblanche, at a time when his wife and her three daughters had to sign before any funds could be transferred from the family trust account.

In her complaint, the daughter states as follows: “Mr Labuschagne’s advice and actions as a broker regarding Realcor Cape investment, was to say at the least reckless and unprofessional and not in the interests of Mrs Terblanche, and his advice was driven by the receiving of commission by himself more than the benefit of the client, Mrs Terblanche.”

The Adviser’s response

  • The first point made by respondent is that the claim had prescribed and in terms of section 27 of the Act, the FAIS Ombud office cannot accept the complaint for investigation. However, the FAIS Ombud pointed out that the period of prescription does not run from the date of the investment. In terms of Section 27 (3) (a) (ii) the period of three years commences on the date when the complainant became aware of an occurrence giving rise to the complaint. As a result, the FAIS office was obliged to accept the complaint for investigation.
  • The respondent was adamant that there was nothing wrong with Mrs Terblanche and that she had the necessary capacity to enter into the contract. However, his version is not supported by the undisputed facts, one being that the chronology of Mrs Terblanche’s mental condition does not support the respondent’s version. Therefore, the FAIS Ombud found that at the time of entering into the contract, Mrs Terblanche did not possess the mental capacity required to enter into the contract
  • The respondent’s claim that he did a proper risk assessment and that Mrs Terblanche requested the investment could also not be proved with any signed documentation.

The FAIS Ombud’s reaction

“What makes respondent’s conduct so much more egregious is that he also knew that the SARB were investigating Realcor for contravening the Banks Act,” according to the FAIS Ombud.

Furthermore, the respondent took advantage of the fact that Mrs Terblanche had no capacity to make financial decisions and “his conduct can only be described as morally reprehensible.”

Of particular significance are the following two points noted by Alan Holton:

  • He has brought the Financial Services Industry into disrepute and he is not fit to be a licensed FSP. (at 59)
  • I refer this determination to the FSCR, FAIS department and Licencing department for further attention. (at 60)

The FAIS Ombud upheld the complaint and ordered the respondents to pay Mrs Terblanche’s deceased estate an amount of R700 000, jointly and severally.”

Click here to download the FAIS Ombud determination.

Earlier this year, the respondent applied for reconsideration of decision of the FAIS Ombud in terms of section 230 of the FSRA 9 of 2017. The Tribunal referred the matter back to the Ombud for reconsideration, possibly to review whether the complaint had indeed prescribed.

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