Illustration: Colin Daniel

PRETORIA – A Bloemfontein financial adviser, who was also a co-executor of the decreased estate of the mother of a then 20-year-old full-time architectural student, has been ordered to repay the woman the R1.3 million he advised her to invest in The Villa property syndication scheme.

The Villa was marketed and promoted by Sharemax Investments, which collapsed in 2010 after the finding by a registrar of banks investigation that its funding model had contravened the Banks Act became public knowledge. 

This led to new investments drying up, and Sharemax was unable to make monthly payments to investors.

Dovetail Trading 509 trading as Legacy Invest and its representative, Hermanus SP Lombard, were jointly and severally ordered by financial advisory and intermediary services (Fais) ombud Naresh Tulsie to repay Rusaan van Staden the R1.3m she invested in The Villa.

Lombard was a financial adviser to Van Staden’s late mother and in January 2010 assisted her in drafting her will, and together with the complainant’s sister was nominated as co-executor of her will and co-trustee in a testamentary trust meant to benefit Van Staden.

Tulsie said the will of Van Staden’s mother stated that her inheritance must be deposited in a trust and the balance of the inheritance only paid out as stipulated in the will once the daughter had completed her studies.

“Despite the stipulations in the will, the respondent (Lombard) had instructed that the inheritance money be immediately divided and paid out to both the complainant and her sister, and instructed the complainant she must immediately invest her inheritance to receive an income,” he said.

Lombard subsequently recommended Van Staden invest her entire inheritance in The Villa.

Tulsie said Van Staden also claimed Lombard did not provide her with any alternative investment options and neither did he discuss any of the risks involved with the investment.

Based on Lombard’s assurances that the investment in Sharemax was safe, Van Staden invested her entire inheritance into The Villa syndication in three separate transactions.

Tulsie said the purpose of the investment had been to generate income and capital growth, but after the final investment was made in July 2010, Van Staden only received a further two income payments, after which they came to an abrupt end.

He said Van Staden at the time the investments were made was a 20-year-old student whose parents were both deceased, which meant the returns generated from the inheritance were her only source of income apart from a R300 living annuity.

“Due to the loss of her inheritance, her primary source of income, the complainant was forced to forfeit her studies due to insufficient funding, which has had a negative effect on her financial wellbeing,” he said.

Lombard claimed he had at all times acted in the best interests of the complainant and conducted himself in accordance with the last will and testament of the complainant’s late mother. 

He also claimed he had provided Van Staden with many alternative investment options, all of which she rejected in favour of the higher investment return offered by Sharemax, but he never provided any documentation in support of this to the Fais ombud.

Tulsie found that Lombard’s advice had caused Van Staden’s loss in that in complete disregard for her interest, he rendered inappropriate and negligent advice while faced with a conflict of interest that he failed to disclose. Lombard had treated Van Staden unfairly and failed to disclose the risk involved.