The financial advice ombud has ordered a Pretoria broker to repay an 81-year-old pensioner the R550 000 life policy payout that she invested in the Picvest Highveld 21 property syndication after she was widowed.
Noluntu Bam, the Ombud for Financial Services Providers, ordered Michelle van Wyk of Future-Sure Brokers, to repay Patricia Goddard, who invested in the property syndication that is now in liquidation in 2009. She had contacted Van Wyk about how to invest the life policy proceeds to provide an income for the rest of her life.
According to Van Wyk, she initially recommended investments from well-known financial services companies, but Goddard rejected these because the potential returns would not provide the income she wanted. She then introduced Goddard to Henk Strydom, a broker consultant for Picvest, and he promised her interest of 12.5 percent a year if she invested in Picvest.
According to Bam’s ruling, she was also told the property syndication could not go bankrupt because it was invested in shopping centres.
The pensioner told the ombud she was told she had to stay invested for five years, but the interest was guaranteed, because the syndication had a lease agreement with the shopping centres’ tenants.
Van Wyk told her she was investing her own money in the Picvest syndication.
Goddard invested in October 2009 and received interest of 12.5 percent until March 2011, when the syndication ran into financial difficulties and the interest was reduced to an effective six percent and later to two percent.
The widow asked for her money back, but her request was denied.
She was later informed that new investors had been found for the troubled syndication scheme and that her investment would be locked in for a further five years with interest of six percent.
Van Wyk told the ombud she was not licensed to sell the syndication and had acted as Picvest’s representative.
Bam says Goddard also laid her complaint against Picvest, but the company is in liquidation.
Van Wyk told the ombud Goddard knew she was taking on risk to earn a higher income, that all investments are risky and an adviser cannot be held liable for the performance of an investment.
But Bam says in her ruling that the complaint is not about the performance of the investment, but the suitability and appropriateness of the advice to invest in it.
Bam found Van Wyk was vague about how much risk Goddard said she was willing to take. There was no evidence on the advice record and other documents to suggest Goddard knew that she could lose her all her capital and that she was at risk of receiving a lower income.
Bam questioned how the high-risk unlisted property investment could be suitable for Goddard when the pensioner had no experience of investing, was of an advanced age, and her finances were limited, giving her little appetite for investment risk.
The ombud concluded that Van Wyk had contravened the code of conduct under the Financial Advisory and Intermediary Services Act, which obliges financial advisers to recommend suitable products given your financial needs and your appetite for and capacity for risk.
Van Wyk told the ombud she did a due diligence on Picvest by obtaining its prospectus and that she could not have been expected to foresee the drop in interest on the investment after the Reserve Bank intervened and the main lease was cancelled.
‘BLATANT CONTRAVENTION’
In 2002, the Department of Trade and Industry (DTI) issued a notice under the Unfair Business Practices Act stating that property syndications should place investors’ money in an attorney’s trust account and pay for the property only once the transfer of the property to the syndication had been registered.
In “blatant contravention” of this notice, the Picvest Highveld 21 paid investors’ money out when the tenants took occupation of the properties, resulting in it losing its financial services provider licence in 2014.
Van Wyk did not ask about the payment or view the syndication’s property purchase agreement, the ombud’s ruling says.
The DTI notice also says investors should be informed in writing that there is substantial investment risk in property syndications and that they may not be able to sell their shares in future.
The prospectus for Picvest Highveld 21, however, states that investors have “peace of mind”, because the income is secured by the head lease and a buy-back agreement ensures that the shares will be bought back from the investor at the end of the five years.
Bam says, on the balance of probabilities, it was unlikely that Van Wyk and Strydom contradicted what was in the prospectus, and Van Wyk had not produced evidence to disprove Goddard’s assertion that the risk was not explained to her.
The ombud says the property syndication’s lease agreement and its buy-back agreement lacked material information about how the property lesssee would fund the rent and how the syndication would buy back the shares.
She says that, if Van Wyk had considered the prospectus carefully, she would have realised that Picvest Highveld 21 was a risky investment with insufficient safeguards against director misconduct or mismanagement.
The cause of Goddard’s loss was the inappropriate advice to invest in a risky product, Bam says, and an adviser cannot argue that he or she could not foresee the risk materialising. On these grounds, she ordered Van Wyk to repay Goddard her R550 000 investment.