Fast little loans
This article was first published in the second-quarter 2012 edition of Personal Finance magazine.
When Charles Pillai, the Pension Funds Adjudicator (PFA), died in November 2010 after contracting cancer, his passing was intensely traumatic for a number of people. Pillai was not only considered to be a great jurist who had made his mark as the country’s first Ombud for Financial Advisory and Intermediary Services (FAIS) but was also a humanist of distinction. His approach to life was based on the principle of ubuntu, namely: “I am because you are.”
Pillai had a significant impact on many people, not least of all Noluntu Bam, the current FAIS ombud, who followed Pillai into the job in March 2010 after he was appointed as the PFA.
Pillai was emphatic that he saw his task as an adjudicator as making determinations based on what is fair and not only on the letter of the law. This is a principle to which Bam has also clearly committed herself, particularly in her determinations against financial advisers who placed investors – all too often pensioners – into high-risk and often fraudulent property syndication schemes.
This commitment to fairness and outrage at injustice are discernible in Bam’s determinations.
The outrage has been evident in how Bam has responded to a challenge to her authority by Santam’s professional indemnity insurance outfit, Stalker Hutchinson Admiral (SHA), which is providing errant financial advisers with the financial muscle to challenge Bam’s right to make determinations in cases involving property syndication schemes.
SHA provided financial adviser Deeb Risk and his company with the legal backing to challenge Bam’s right to make the determinations. This was after Bam ruled against Risk and ordered him and a number of other financial advisers to make good to the investors they had encouraged to put money into the imploding property syndications.
SHA could have to pay claims of thousands of millions of rands from the financial advisers to whom it has sold professional indemnity insurance and who face determinations and compensation orders for selling property syndications. It wants to force the investors, most of whom have lost all their savings, to sue the advisers in the High Court instead of taking their complaints to Bam.
If SHA has its way, it will effectively block the complainants, because they will not be able to afford the high cost of going to court.
The very reason the government established the office of the FAIS ombud is so that consumers have cheap and easy access to justice when they receive bad financial advice.
Finance Minister Pravin Gordhan referred to the FAIS ombud’s role in this regard in his foreword to Bam’s annual report for 2010/11.
He wrote: “Access to justice is a key feature in a constitutional democracy. The establishment of the FAIS ombud eight years ago was aimed at establishing an independent and impartial forum for resolving complaints by consumers who, without the forum, might not have had the option of going to court.”
Bam has made it clear that she will not be intimidated by the bully-boy tactics of the financial services industry. The challenge to her authority is scheduled to be fought out in the High Court.
Bam makes no secret of the impact that Pillai has had on her. In her first annual report, released last year, Bam acknowledged the influence that Pillai had on her and her office, describing him as “my late friend, brother and mentor. His spirit lives in all of us who knew him.”
Their paths first crossed when Pillai was one of her lecturers at the School for Legal Practice, which was attached to the University of Natal (now the University of KwaZulu-Natal).
The school’s administrator asked Bam to give Pillai a call. This led to her meeting him and her deciding to do her articles under Pillai’s tutelage.
In an interview, Bam said: “It is hard to describe in words how profoundly my meeting Charles was to change my life. The relationship went from a teacher/student, to an employer/employee and, finally, to a brother-and-sister relationship characterised by respect, love, support, mentoring and constant nurturing. At times, we used to laugh about how we met in the first place.
“One thing, though: no matter how close I was to Charles, the underlying glue binding us was our passion for our work of resolving complaints. Work had to be done properly. He wasted no time in indicating where he was not pleased with whatever I did.”
Bam grew up in Ngangelizwe Township in Mthatha in the Eastern Cape, where her father owned a general dealer’s store.
“My mother’s time was shared between assisting my father with running the shop, her dress-designing home business and looking after us.”
Bam matriculated from Umtata Technical and Commercial College. In grade eight, while she was at another school, Bam was selected to study commercial subjects at the college, and she studied economics, accounting and mercantile law.
It was while at Umtata Technical and Commercial College that Bam’s interest in law was sparked. Bam’s father had wanted her to be a doctor. Her other career choices were to be an accountant or an economist.
After matriculating, Bam worked as a Post Office clerk before deciding that law was her destiny and registering for a BProc at the University of Transkei. After graduating, she moved to Durban to pursue her LLB, “to diversify institutions and to open my eyes”.
Bam says it is not only Pillai who has had a significant impact on her life: “Undoubtedly, my parents, a number of high school and university teachers, as well as a few friends, have helped me make meaning of life. To all these people I remain eternally grateful.”
When Pillai was appointed as the FAIS ombud in 2003, he asked Bam to serve as the assistant ombud.
She says: “[At the time] I felt it was something up my street. Now it is a question of loving what I do. I go to bed every night knowing that, through my team, I have made a difference in someone’s life, who, without our office, would have probably had their life turned upside down.”
Prior to taking up the post she worked on the other side of the fence, so to speak, as a legal adviser for Old Mutual Personal Financial Advice and Liberty Life. This experience had an immense impact on her work as the FAIS ombud, specifically in understanding the financial planning environment, Bam says.
Bam accords a high priority to education. She is completing an MBA thesis on the regulation of the financial services industry.
Bam has also been instrumental in driving her staff to improve their level of education.
She says in her 2010/11 annual report: “In our quest to offer a service that is relevant to the needs of those who use it, we figured that, without ongoing development, offering the right kind of service would be a challenge.
“We view ourselves as a learning organisation. Accordingly, we have made training and development a mandatory element in each employee’s performance pact, regardless of which department the employee serves.”
For example, a decision has been made that the minimum educational standard for employment in the office’s technical team must be an NQF 5 in financial planning.
Her office has also initiated an undergraduate bursary scheme for law students.
Bam says the education drive is part of an initiative to grow and develop intellectual capital within her office, “to ensure that we are capable of meeting the demands of a complex and ever-evolving financial services environment.
“An important part of this challenge is to ensure that the service we offer remains relevant to all South Africans. This is not easy.”
Bam is not satisfied simply to make rulings against erring financial advisers: she also names and shames the people behind the scams, as well as those who should have done more to prevent them. Bam does this despite the fact that, in most cases, she cannot issue determinations against these individuals: she is limited to dealing with those who provided the inappropriate advice and sold the products.
Bam has warned that she will not allow individuals who devise crooked investment schemes to hide behind a corporate veil.
In numerous determinations, she has drawn conclusions about company directors who “knew that what they were doing was deceitful. What they were doing was stealing money from unsuspecting investors by making use of brokers (advisers).”
Bam has done this particularly when issuing determinations in cases involving fraudulent property syndications, such as BlueZone and Blue Pointer.
In a recent series of determinations, she ordered two company directors, Deolene Susan Catsicadellis and Reginald William Lynton Rabie, both of the Western Cape, to repay about R150 000 to two investors. Bam found that Catsicadellis and Rabie had assumed the role, albeit illegally, as key individuals in terms of the FAIS Act, and as such could be ordered to pay the compensation.
She has questioned the way the directors of failed and/or fraudulent schemes make false claims about the use of attorney trust accounts, auditing firms, property valuers and banks. She has also named the lawyers, property valuers and auditors who were used in property syndication schemes and who failed to do their jobs properly.
When Bam finds evidence of wrongdoing on the part of those who fall outside her office’s jurisdiction, such as lawyers, she reports their activities to the bodies that are empowered to take action against them, such as the law societies and the Financial Services Board, as the industry regulator.
In her determinations against errant financial advisers, Bam has highlighted the fact that the architects of high-risk investment schemes pay above-normal commissions, which become the motivation for sales and advice, rather than the interests of consumers. In the process, the advisers do little or nothing to check the veracity of the claims made by the promoters of the schemes.
Bam says one of the problems in the consumer protection environment is that consumers are not sure where to take their complaints. This results in respondents attempting either to circumvent the jurisdiction of the ombud’s office or to delay the processing of complaints.
“Quite commonly, respondents challenge the jurisdiction of the FAIS ombud’s office in the hope that they can divert the matter to an alternative forum where it may be economically unfeasible for many complainants to continue.
“Coupled therewith are the potential delays, which may disillusion a complainant.”
Bam agrees with the government’s resuscitating the idea of a single complaints resolution/adjudication structure for the entire financial services industry, to replace the numerous voluntary and statutory schemes, while incorporating the existing skills and experience into the new entity.
She says a single structure “would assist in bringing about an end to the jurisdictional confusion that currently exists”.
Bam says she would like the limit on the compensation that her office can award to be increased from R800 000, because this amount has not been revised since the ombud’s office was established on September 30, 2004. “Time and inflation stand still for no man, and hence the present value of this amount is significantly smaller than it was at the inception of the office.”
Bam is proud that her office has “an unblemished record both in terms of the fairness of its decisions, as well as its unqualified audit reports. The statutes governing the office, such as the FAIS Act and the Public Finance Management Act, mean that the office is subject to very close scrutiny, which includes various audits. It is my responsibility to ensure that we continue to pass these inspections with flying colours.”
Bam says the financial services industry in South Africa is an innovative one, with links to the rest of the continent and beyond.
“This brings with it an exchange of ideas and processes which are intellectually stimulating and exciting. In simple terms, I get to interact with great minds both within and outside my office.”
Regarding the behaviour of the financial services industry, she says that, once you break it down, the industry is “all about money, which in itself can attract unscrupulous individuals who operate without any moral integrity.
“While the majority of established institutions are underpinned by good corporate governance, there are those who design and promote products that have little or no chance of providing any return for the client. When down the line the scheme collapses, the perpetrators have moved on or have hidden their assets, leaving consumers destitute. It is important that such individuals are speedily brought to book so as to serve as an example.
“In addition to effective enforcement, there may be a need for greater scrutiny of financial products, in particular the way in which they are marketed, the structures thereof, and the ease with which the average individual can understand the promotional and contractual material. We also need to be aggressive and more focused with consumer education.”
Bam says that all the determinations issued by her office have equal importance, although they may speak to different financial products and highlight various tendencies.
However, for Bam the determination that stands out is the one in the case of Helena Dennis versus Nedbank Group Insurance Brokers, “perhaps because it was our start in writing determinations and it helped to bring the FAIS ombud to the attention of ordinary people”.
In 2005, Pillai ruled against Nedbank after Dennis complained that the bank had refused to accept, as a condition for a home loan, an existing life assurance policy she had with another company. It wanted Dennis to purchase one of its products. Pillai ruled that this was a denial of freedom of choice and was contrary to the intention of the legislature.
Outside of her job, Bam enjoys keeping fit and reading. When Personal Finance interviewed her, she was vacillating between The Leader Who had No Title by Robin Sharma and John Grisham’s The Confession.
“I never tire of reading Chicken Soup for the Soul,” she says.
Bam makes relaxing with her family a priority when she goes on holiday. “Durban remains a favourite destination, as I left good friends behind when I moved to Pretoria. I also visit my siblings at the family home in Mthatha from time to time.”
The tenet on which Bam models her life is one that those who mis-sell financial products would do well to emulate instead: “Do unto others as you would like them do unto you.”