The financial advice ombud this week ordered two financial advisers who advised investors to invest in property syndications promoted by Sharemax to compensate them for the almost R700 000 they lost.
One investor, a 65-year-old KwaZulu-Natal widow, invested all her savings of R650 000 in the Sharemax Zambezi Retail Park in 2008. In June 2010, she received her last interest payment.
Noluntu Bam, the Ombud for Financial Services Providers, ordered her adviser, Johannes Mostert, to repay her the R650 000 after he failed to justify his investment advice to the ombud.
According to Bam’s ruling, Mostert initially paid the widow, Mrs L, her monthly payments himself, but he was unable to keep up the payments and reduced the amount.
Mrs L was forced to sell the home in which she had lived for 39 years to have capital to provide an income and rent a flat, the ruling says. She is worried she will be stranded when this money runs out.
When Mostert learnt that she had sold her home, he stopped his payments.
The second investor, also from KwaZulu-Natal, Mr R, invested R40 000 in Sharemax’s The Villa Retail Park in 2009, Bam’s second ruling reveals.
His adviser, Alida du Preez-Maritz of Bahati Yetu Brokers, was ordered to repay him what he lost, after she responded to Bam with “unpalatable statements and gratuitous attacks” on Mr R and said she did not have time to waste on “this rubbish” and the “stupidity” of having to exonerate herself.
According to the ruling, Mr R said Du Preez-Maritz had persuaded him to sell an Old Mutual policy to invest in The Villa in 2009 because he could earn better returns.
Mr R told the ombud he did not see anything untoward in the advice because he had invested R100 000 in another Sharemax property syndication, and was receiving regular interest.
But in September 2010, he read media reports that The Villa was bankrupt, and he has not recovered his investment.
In both cases, Bam found the advisers were responsible for the losses.
Mrs L was of the view that she should invest her money with Momentum, but she sought the advice of Mostert because she feared she was not knowledgeable about investments, the ruling says.
She told the ombud that Mostert guaranteed that her funds would be safe and that she would enjoy capital growth after five years, even if she withdrew the interest as a pension.
Bam found that both Mostert and Du Preez-Maritz could not have followed the general code of conduct under the Financial Advisory and Intermediary Services (FAIS) Act, which requires financial advisers to recommend an investment that is suitable for you given your financial needs and the risk you can afford and are willing to take.
Mrs L was a pensioner who relied on her investment for an income and therefore could not take the risk of losing it.
In his complaint to the ombud, Mr R says Du Preez-Maritz did not tell him that the Sharemax investment was a high-risk one.
Bam wrote to Du Preez-Maritz stating that property syndication investments are high-risk ones because they are unlisted companies and the way in which the properties are valued is never disclosed. The ombud asked the adviser to provide evidence that she had made Mr R aware of the risks. Du Preez-Maritz did not respond.
Bam also says in her ruling there was no evidence that Du Preez-Maritz had followed the FAIS Act requirements for replacing one investment (Mr R’s Old Mutual investment) with another: the Sharemax property syndication.
Bam found in both cases that the advisers had failed to conduct a due diligence on the Sharemax investments and there was no evidence that either of them knew how the investments would fund the interest they promised to pay the investors, given that the properties were still being constructed and therefore had no rental income.
Bam says in both rulings that there was no evidence that the advisers were aware of the risks involved in Sharemax.
“These include the lack of apparent safeguards to protect investors against director misconduct; the lack of visible governance arrangements; and the complicated structure of the investment itself, which left the investors with no protection,” she says.
Bam also found Mostert contravened the FAIS Act because he was not licensed to give advice on shares and debentures.