If you are about to benefit or have recently benefited from a retirement fund or severance payout and have a large sum of money to invest, be particularly on your guard against unscrupulous advisers, especially if they cold-call you. And even if you have built up a level of trust with an adviser, you need to continually question whether he or she is acting in your best interests, and always find out what commission the adviser receives for putting you into a particular investment.
Three recent determinations by the Ombud for Financial Services Providers, Noluntu Bam, were against financial advisers who advised pensioners to invest in high-risk property syndications that subsequently imploded: Sharemax, Genesis and Realcor Cape.
PENSIONER’S PLIGHT
In April 2009, Ms M, a pensioner from Parys in the Free State, was persuaded by Wilhelm Germishuys, the owner of Westdene Brokers in Vryheid, KwaZulu-Natal, to invest R300 000 in a Sharemax scheme known as The Villa.
Ms M received interest payments on her investment until October 2010, when they stopped, and she then discovered that The Villa was bankrupt.
In her complaint to the ombud in 2011, Ms M wrote: “Mr Germishuys invested our pension money into Sharemax and assured us that it was not a high-risk investment and that our money was safe … To date we have not received any satisfactory information concerning our investment … Since October 2010 [Germishuys] made appointments to come and see us, to see if he could get our money out of Sharemax. But he never keeps his appointments and always has excuses.”
Germishuys subsequently also evaded attempts by the ombud’s office to elicit a response to Ms M’s complaint.
In her determination, dated May 2016, Bam found that Germishuys had contravened the Financial Advisory and Intermediary Services (FAIS) Act and its code of conduct for advisers by, among other things, failing to assess Ms M’s financial needs and determine her risk profile, failing to render financial services honestly and fairly, with due skill, care and diligence in the interests of his client, and failing to maintain a record of advice.
She ordered Germishuys and Westdene Brokers jointly and severally liable for R300 000 to be repaid to Ms M.
LIFE SAVINGS
In 2010, Mr S filed a complaint with Bam against Daniel Johannes du Plessis of Compton Consulting, Somerset West, about an investment in the Genesis syndication.
He said that, in 2000, he received a call from Du Plessis, who had heard that Mr S was about to take a retrenchment package from the South African Police Service. He offered to help Mr S with his benefit.
Mr S invested his savings, R770 000, with Investec, from which he received an income of R7 000 a month until the investment matured in 2005.
He said he told Du Plessis he wanted the money to be re-invested with Investec, but the adviser pointed him towards the Genesis Property Group (initially called the Property Inter Action Group).
Mr S claimed he was eventually persuaded to invest in Genesis, and an investment of R840 000 was made in August 2005, with a projected annual return of 8.5 percent, which would be paid to Mr S as a monthly income.
Mr S was paid a monthly income of R5 679 until June 2008, when it abruptly stopped. Genesis was liquidated the following year.
In her determination, dated May 2016, Bam says that, apart from other violations of the FAIS Act, there was no indication that Du Plessis had carried out a due diligence assessment of Genesis. And she says that, for Mr S to have agreed to Du Plessis to invest in Genesis, despite his objections, “there is no doubt in my mind that trust played an important role in [their] relationship … he clearly must have been relying on [Du Plessis] to guide him, which was a grave mistake … [Du Plessis] simply preyed on the complainant and abused the trust relationship for his own gain.”
Bam ordered Du Plessis and Compton Consulting to repay Mr S R800 000 of his R840 000 investment in Genesis – R800 000 is the maximum that can be claimed through her office.
HOTEL INVESTMENT
In a third determination, another adviser was ordered to repay a pensioner his investment in a property syndication, for similar reasons.
In June 2010, Barend Petrus Geldenhuys of Huis van Oranje Financial Services, Pretoria, advised Mr B of Gauteng to buy shares to the value of R300 000 via the property syndication company Iprobite, marketed by Realcor Cape, in the Blaauwberg Beach Hotel.
Shares and debentures in the hotel were meant to pay an annual return of 15 percent, and about 3 000 investors, many of them elderly, invested a total of R616 million.
On investing, Mr B received a monthly dividend for just a few months, until about October 2010, when the payments suddenly stopped.
In November 2010, the South African Reserve Bank found that Realcor was taking deposits without being registered as a bank and ordered it to repay all funds so obtained. Iprobite was liquidated in October 2011, and in May 2013 the hotel was sold for R50 million.
Bam found that Mr B had been under the impression that there was no risk in the investment. He had been inappropriately advised according to the FAIS Act and its code of conduct. She ordered Geldenhuys to repay him his R300 000.