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A decision by the Financial Sector Tribunal in December has delivered a resounding blow to financial advisers who put their own interests before those of their clients, and who think they can delay justice indefinitely through endless appeals.

Over the past decade, the financial advice industry has increasingly held itself to higher standards. However, there are still advisers who are poorly qualified - essentially salespeople in everything but name. Many of this breed of adviser coaxed clients to put their money in schemes, such as property syndications, that paid high commissions but were very risky. The full risks of these investments were neither properly interrogated nor openly explained to the investors.

Property syndications, which flourished in the early 2000s, came to a inglorious end in the aftermath of the global financial crisis in 2008/9, when property values took a dive.

The syndications, of which Sharemax was possibly the most infamous, folded and thousands of people, many of them vulnerable pensioners who had invested their life savings, lost billions of rand.

Many investors approached the office of the Ombud for Financial Services Providers, complaining that they had been advised improperly and that the investments were far more risky than they had been led to believe. The ombud (first Charles Pillai, then Noluntu Bam, and now Naresh Tulsie) issued a string of determinations against advisers in these cases on the grounds that they had contravened the Financial Advisory and Intermediary Services (FAIS) Act and its code of conduct.

Key case

A key case was that of Johannesburg adviser Deeb Risk, who persuaded clients to invest in Sharemax. Several clients were successful in having determinations issued against Risk by the ombud, who ordered Risk to repay them what they had invested.

According to a recent press release by the ombud’s office on the December 19 ruling by the Financial Sector Tribunal, in 2012, the ombud, commonly referred to as the FAIS Ombud, made two determinations in favour of Mr & Mrs Oldacre, and Ms Bujok, who had invested in Sharemax. Risk, backed by the providers of his professional indemnity cover, Stalker Hutchison Admiral, a subsidiary of Santam, fought back in a series of legal challenges that lasted six years.

He appealed to the then Financial Services Board’s Board of Appeal, and was turned down. Risk then approached the High Court with an application to have the decision of the board reviewed.

In November 2016, the High Court set aside the board’s decision, and referred the matters back to the board for reconsideration. The board referred the matter back to the Office of the FAIS Ombud for reconsideration, without setting aside either of the determinations.

In August 2017, and after considering Risk’s further submissions, a recommendation was made that Risk pay the amounts as stated in the respective determinations. Risk did not accept the recommendation, and in response filed “voluminous amounts of paper as additional evidence”, according to the release.

In December 2017, the ombud concluded that the evidence presented “was not persuasive”, and as such, the previous determinations stood. But Risk and his legal team again applied for leave to appeal.

Tribunal’s decision

At the commencement of the proceedings, says the FAIS Ombud’s release, Risk argued that the panel was not properly constituted and, in essence, was incompetent. He also argued that the ombud had shown bias in its determinations against him.

“The tribunal dismissed (the first) argument on the grounds that the panel was constituted by the chairperson of the tribunal, and the panel did not have the jurisdiction to review a decision of the chairperson. Furthermore, (Risk) failed to place a proper argument before the tribunal to support (his) challenge of competency.”

The tribunal also dismissed the allegation of bias, referring to a judgment of the Constitutional Court. “The finding was that no reasonable, objective and informed person could, on the correct facts, apprehend that the ombud would not bring an impartial mind to bear in the adjudication of the complaints against the appellant.”

The panel also referred to a previous tribunal decision which found that applications from Risk’s attorneys were “prima facie vexatious, and an abuse of process”.

In essence, the tribunal found the determinations against Risk were valid and he was negligent when he rendered the advice to the complainants. The appeal was dismissed with costs.

FAIS Ombud's view

The office of the present ombud, Naresh Tulsie, says it is aware of the number of property syndication matters that are still outstanding, pending finalisation.

“Each matter will still be adjudicated on its own merits, regardless of the time that has passed to ensure that a fair and impartial decision is reached,” the office says.

“That being said, the process of finalising matters is hampered by the constant legal challenges the office, and more so, complainants have to face.

While we support a fair judicial process, the time has come to ask whether the (continual) appeals of decisions of this office are in the best interest of consumers, and the financial services providers who religiously pay premiums for professional indemnity cover.

“The legal costs by now have far outweighed the capital lost by complainants, and the insurers and individual financial services providers driving this litigation, should consider whether they are not throwing good money after bad, simply to make a point.

“We remind the industry that the Code of Conduct [under the FAIS Act] requires providers to at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interest of clients and the integrity of the financial services industry,” the ombud’s office says.

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