FAIS Ombud determination involving Albertyn and another and Teo Herselman Makelaars Bk and another

By Shamaa Sheik 

The following matter was heard in the Office of the Ombud For Financial Services Providers in Pretoria:

• Ann Elizabeth Albertyn (1st Complainant), Pieter Kuyper Albertyn (2nd Complainant) and Teo Herselman Makelaars Bk (Pty) Ltd (1st Respondent) and Teober Herselman (2nd Respondent) – case number FAIS – 06963-11/12 WC 1; FAIS – 06965-11/12 WC 1

*Respondent or respondents means both respondents, unless otherwise stated.

Fast facts

General Code of Conduct – breach – non-disclosure of risk
Market conduct – Advice – contractual liability of FSP – duty of FSP to advise with skill and care – financial loss associated with bad advice

Summary

Background and facts regarding the complaint

The complainants had invested a large sum of money into  property syndication schemes promoted by PIC Syndications (Pty) Ltd on the advice of the second respondent.

The second respondent had pitched the investments to the complainants as being secure and guaranteed; however, the syndications failed within two years of the complainants’ investments.

The complainants were further promised to receive an income of 12% for the duration of the investment. In 2011, the income had instead decreased from the 12% promised to investors to 6% nor was it restored to the initial amount promised to complainants since. After a 6-year period, the capital amounts of the investments were never recovered by the complainants.

The complainants attributed their losses to the respondents whom they claimed made fraudulent representations to them in terms of their investment. They accordingly approached the Office of the Ombud for relief.

Further facts relating to the complaint include the following:

• The complainants said that they had withdrawn investments from other establishments to invest in the scheme with the respondents.
• Complainants acknowledge having signed a risk assessment with their application forms but claim that the second respondent did not discuss the content of the risk assessment with them and were hence unaware that their investments were not guaranteed.
• In 2012, the complaints discovered that there was no property registered in the name of the syndications.

Respondent’s version

The response from the respondent was as follows:

• None of the allegations from the complainants were addressed.
• The second respondent instead confirmed that he recommended the investments to the complainants and proceeded to refer the Office to some of the details or information contained in the prospectus for each of the syndications into which the complainants were invested.
• The second respondent maintained that he was compliant at all times but that the syndications managed by Pickvest, including the ones that the complainants were invested in, were placed under business rescue and that investors voted in favour of the business rescue proceedings.
• The Office took the decision to investigate the complaint as it was not satisfied that the second respondent cited no response to the allegations made by the complainants.

Issues for determination

The Office highlighted the duty on the respondent to ensure that a product or products recommended to a client are suitable to the client’s needs. Therefore, the following issues were before the Office for determination:

• Whether the respondent is liable for the losses occasioned to the complainants?
• Whether the respondent’s conduct, when rendering the financial service, met the standard of a reasonable financial services provider or not.
• Was the product recommended to the complainants suitable for their needs?

The Office referred to the Code extensively. In particular, reference was made to s 8(1)(a)-(c) of the Code of Conduct for Authorised Financial Services Providers and their Representatives extensively. The section provides as follows:

'a provider, other than a direct marketer must, prior to providing a client with advice –

(a) take reasonable steps to seek from the client, appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice;

(b) conduct an analysis for purposes of the advice, based on the information obtained;

(c) identify the financial product or products that will be appropriate to the client’s risk profile and financial needs subject to the limitations imposed on the provider under the Act, FAIS Act, or any contractual arrangement.'

The Office found as follows:

• Second respondent’s declaration as a professional financial services provider rendered him responsible for protecting the interests of his clients.
• This compelled him to conduct compulsory enquiries into the agreements on which he relied to find the investments appropriate to the complainants.
• The advice provided to the complainants was not appropriate to their needs and circumstance, because the information on which the respondent relied, was not true.
  respondent was hence not justified in presenting the investments to the complainants.
• The Office then went on to determine whether the complainants understood the advice provided to them by the second respondent and whether they were in a position to make an informed decision.

The Office noted that at the time the financial service was rendered to the complainants, they were 64 and 66 years old respectively. It was the view of the Office that the complainants might not have been introduced to property syndications, and that their knowledge of investments was restricted to the investments they held at the time.

Nothing, in the record of advice provided to the Office, proved that the second respondent explained to the complainants how the investments differed from those which they had at the time. The implications of investing in the property syndications was not explained to the complainants which was a direct breach of the Code.

The Office found that if the respondent provided a comparison of the investments to the complainants, it would have afforded them an opportunity to make an informed decision based on their needs.

Despite having several opportunities to ensure that the complainants understood the advice, the respondent did not exercise them. It was for these reasons that the Office found that the respondent’s conduct, when rendering the financial service to the complainants, did not meet the standard of a reasonable financial services provider.

 

Order

The complaint was upheld.
The first and second respondent were ordered, jointly and severally, the one paying the other to be absolved, to pay to the first complainant the amount of R500 000 and to the second complainant, the amount of R350 000.
Interest on the amounts at a rate of 10.25% per annum from the date of determination [27 August 2019] to date of final payment.
Complainants ordered to cede their rights and titles in respect of any further claims in respect of these investments to the respondents.
Leave to appeal was granted in terms of the Financial Sector Regulation Act 9 of 2017.

--------------

The law

• FAIS General Code of Conduct for Authorised Financial Services Providers and their Representatives – ss 2, 3(1)(a)(iii); 7(1)(c); 8(1)(a)-(d) and 9; 11; 12
• Financial Sector Regulation Act 9 of 2017 - ss 28(5)(b)(i), 230
• Financial Advisory and Intermediary Services Act 37 of 2002 – ss 27(4), 28(1)
• Rules on Proceedings of the Office of the Ombud for Financial Services Providers – rule 6(c)

Case referenced

Optimum Consultants (Pty) Ltd and Another v Margaretha E Lambrechts N.O. and others 22 May 2018 [no case number found – link to case here]

Full text- FAIS Ombud Determination- Albertyn-Herselman