The financial advice ombud has issued a determination against another financial adviser for putting a pensioner into a high-risk property syndication investment.
Noluntu Bam, the Ombud for Financial Services Providers, has ordered Jannie van der Merwe of Optimum Consultants in Upington to pay Mrs Z the R100 000 she invested and lost.
In 2006, Van der Merwe persuaded Mrs Z to invest in Highveld Syndication Company No. 19 (HS 19) through financial services company Picvest, which promoted and marketed various property syndication schemes. The pensioner handed over her retrenchment payout of R100 000, on which she depended for an income. She was told she would earn a return of eight percent a year, with an annual escalation.
In 2008, when the property market declined, companies marketed by Picvest went into business rescue, and Picvest itself became the subject of an investigation by the Reserve Bank for taking deposits illegally. This led to a drop-off in investor funding and the ultimate collapse of the web of companies.
In 2011, when Mrs Z’s income dried up, she laid a complaint with Bam’s office. Van der Merwe was asked to respond to the assertion that he had mis-advised Mrs Z.
According to Bam’s determination, Van der Merwe replied that he could not be held liable for any personal losses, and denied telling Mrs Z that her capital was guaranteed. He said he did not render financial services in a negligent manner, did not treat any investor unfairly, and had not transgressed any regulation.
Bam found otherwise. Van der Merwe and his company had transgressed the Financial Advisory and Intermediary Services Act and its code of conduct for advisers, she said, chiefly by not carefully assessing the risks involved in the investment and by not telling Mrs Z about these risks.
Bam notes that Van der Merwe also paid no heed to a government notice (Government Gazette Notice No. 459 of 2006) that addressed property syndication schemes in particular.
Among other things, the notice stipulated that investors be informed in writing that:
* A public property syndication is a long-term investment, usually not less than five years;
* There is a substantial risk that investors may not be able to sell their shares in future; and
* It is not the function of the promoter to find a buyer if an investor wants to sell his or her shares - it is the investor's responsibility to find a buyer.
Bam says: “Had [Van der Merwe] done his work according to the Act and the code, no investment would have been made in HS 19, this bearing in mind [Mrs Z’s] circumstances … [Van der Merwe] had no ability to assess the risk in this investment, yet he advised his client that it was a safe investment and suitable for her risk profile. To even describe the investment as safe and suitable was negligent on [his] part."