A Gauteng-based financial adviser, Deeb Risk, on the legal advice and with the financial backing of a Santam-owned insurance company, has launched an urgent application in the Pretoria High Court to prevent Noluntu Bam, the Ombud for Financial Services Providers, from hearing complaints by investors who face losses of millions of rands in the wake of the implosion of various Sharemax pro-perty syndications.

If successful, the application could prevent hundreds of people from receiving quick and cheap assistance from Bam’s office, and from being compensated by financial advisers who provide them with bad advice.

In a replying affidavit, Bam warns that if she is interdicted from dealing with complaints against Risk and his company, “it will open a flood of applications from financial services providers who placed their clients’ investments in a manner contrary to the FAIS (Financial Advisory and Intermediary Services) Act.

“A dangerous precedent will be set that will effectively prevent hundreds of people from coming to the ombud’s office for assistance. The purpose of the Act will be defeated,” Bam says.

Risk, with the support of Santam subsidiary Stalker, Hutchison and Admiral (SHA), which provided Risk with professional indemnity insurance, wants to tie up ageing pensioners, whom Risk advised to invest in property syndications, in expensive court battles that could be taken all the way to the constitutional court.

Risk and SHA do not want the complaints to be decided by the ombud’s office, which was created to give consumers a quick and cheap way to recover money lost as a result of bad financial advice.

The application, which is due to be heard on Tuesday, was made by Risk and his company, D Risk Insurance Consultants. It seeks to interdict Bam and the Minister of Finance, Pravin Gordhan, as well as eight pensioners, ranging in age from 71 to 85, whom Risk advised to invest in the Sharemax syndications.

Risk and his company, backed by SHA, have already lodged a normal court application to stop Bam from issuing determinations. The urgent application was made because Bam issued a determination two weeks ago that ordered Risk to pay Elise Barnes, a 71-year-old pensioner, R800 000. Risk advised Barnes to invest R1.4 million in a Sharemax syndication, but Barnes had to forgo R600 000 of that amount in order to obtain quick and affordable redress from the ombud, who is limited to ordering compensation up to R800 000.

This week, Bam issued another determination that ordered Risk and his company to pay Barnes R400 000 for another property syndication investment that he advised Barnes to make.

In an affidavit in support of his urgent application, Risk says he wants the High Court to:

* Stop Bam from registering her first determination against him as a civil judgment with the registrar of the High Court (which she is required to do within 30 days of making a determination); and

* Restrain Bam from making any further determinations against him until a judgment is handed down in the main application.

Risk claims that his constitutional rights have been undermined because Bam did not direct the pensioners to make their claims against him in the High Court. In her replying affidavit, Bam says, in terms of the FAIS Act, the ombud has the sole discretion to decide on that issue.

Risk says that Bam should not be making determinations because:

* He was not allowed to lead evidence or have legal representation when he appeared before the ombud;

* Bam has been critical of property syndications in her previous rulings; and

* Bam does not have training or experience in property syndications.

In her affidavit, Bam rejects Risk’s application for the urgent intercession of the High Court. She says Risk has not shown, as he is required to do, that:

* He has a reasonable chance of success in the main application; and

* He will suffer harm if the urgent application is not granted.

Bam says that Risk has one month in which to take her determination to the Financial Services Board’s Appeal Board, which is headed by former Appeal Court Judge Craig Howie. Risk and his company have not lodged an appeal.

The application by Risk and his company must be seen as a “calculated and deliberate strategy to delay justice at the expense of the complainants, who are, for the most part, ageing pensioners who may be struggling to survive”, Bam says.

To saddle pensioners with legal costs by exercising her discretion for the complaints to be taken to the High Court is “utterly unconscionable. I ask this court to refuse to facilitate such grossly deprecatory conduct. The FAIS ombud’s office was established to avoid that tragedy and abuse,” Bam says.

Bam rejects as unreasonable Risk’s claim about her being critical of property syndications, because these criticisms were contained in earlier determinations on other syndications that involved other financial advisers.

Risk and his company do “virtually everything to avoid dealing with the most rudimentary things necessary to dispose of the complaints against them”, she says.

Instead of providing documentary evidence of how they have complied with the FAIS Act, Risk and his company have demanded that she refer the complaints to the High Court, contending that Bam and her office are not competent to deal with the complaints, Bam says.

SANTAM REACTS

Neither Sanlam, Santam nor its subsidiary, Stalker, Hutchison and Admiral (SHA), are at war with consumers, Ian Kirk, the chief executive of short-term insurer Santam, says.

Kirk was reacting to our reports on the applications made to the High Court by financial adviser Deeb Risk to prevent the Ombud for Financial Services Providers issuing determinations against him.

Kirk says the three companies have built businesses that “have always held the consumer at the centre of what we do.

“We do, however, have an obligation in terms of the insurance policy with Deeb Risk to provide legal defence cover and to advance the defences of our client.

“SHA, nor Sanlam, nor Santam has sold Sharemax to any investor and neither have we given insurance cover to financial services providers who act recklessly or who intentionally invest their clients’ money in high-risk investments.”

He says the applications to the High Court do not deal with the merits of the case but rather with the procedure followed by the ombud in making the determination against Risk.

Kirk says he is trying to set up a meeting with the ombud to resolve the dispute “in the best interest of all parties, without having to litigate, either in the courts or through the media”.

HOW THE OMBUD DECIDES CASES

The Office of the Ombud for Financial Services Providers has dealt with more than 30 000 complaints since it was established in 2004. The ombud’s office is required to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner.

In her affidavit opposing an urgent application brought by Deeb Risk and his company to stop her from making determinations on imploding property syndications, ombud Noluntu Bam says the the Financial Advisory and Intermediary Services (FAIS) Act envisages that inquiries will follow an inquisitorial process, rather than an adversarial trial-type process.

The focus of an inquiry is to establish whether, in providing advice to a consumer, a financial services provider complied with the FAIS Act and its codes of conduct.

Over the past year, one percent of the complaints received by her office resulted in Bam issuing a determination. About 50 percent of complaints were referred to other dispute resolution bodies; about 11.5 percent of complaints were resolved in settlements between the parties; and about 38 percent were summarily dismissed.

INDEMNITY COVER

The purpose of professional indemnity (PI) insurance cover is to protect consumers, Gerry Anderson, the deputy executive in charge of market conduct at the Financial Services Board, says. This is in line with international practice, he says.

“The PI cover is definitely not there to enable financial services providers (FSPs) and their representatives to fight consumers,” he says.

However, most FSPs, who are defined as category one FSPs, are not required to have PI cover, Anderson says.

His office is investigating the necessity of extending the requirement for PI cover in general, Anderson says. However, no decisions have been made in this regard and a report on the matter is receiving attention, he says.

WHO’S QUALIFIED?

Noluntu Nelissa Bam was appointed as the Ombud for Financial Services Providers in 2010 after having served as the deputy ombud for the previous three years. Bam is an attorney of the High Court of South Africa, has a master’s degree in law from the University of South Africa and has the Certified Financial Planner accreditation from the Financial Planning Institute – one of the highest qualifications a financial adviser can hold.