An investment gone wrong
In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complaint arises out of an investment gone wrong.
We summarised the determination for you but you can download the original determination here.
Some Background
Kenneth Kingsley Kwasi Boemah was advised by Kevin Thomas, a representative of the second respondent, Silver Seeds Capital, to invest in Silver Seeds Capital, into what he terms ‘a fixed term investment with the understanding that I could opt out at any time’.
Following an agreement to pay R5 000 every month, the investment began on 1 August 2010 when Boemah made the first payment. The agreement was to endure for five years.
At the time of concluding the investment Boemah was employed as support staff to a cabinet minister. During May 2012, Boemah lost his job when the Minister he was supporting was relieved of his duties, following a cabinet reshuffle. As this was Boemah’s only source of income, he could no longer sustain the investment.
Boemah later found temporary relief when he became part of a project and was able to generate income. Although he could no longer contribute to the investment, he was able to keep the investment where it was in December 2012. Up until then, he had been making infrequent contributions, since he lost his employment.
The issue
During January 2014, in need of money to pay university fees for two of his minor children, Boemah requested termination of the investment and access to all his funds.
Boemah claims that at first, the respondents acceded to his request but later reneged on the payment. He claims he continued to make several enquiries regarding payment only to be informed by the respondents that they were cash strapped, as a result of an agreement to supply Eskom with coal.
He further claimed he had not been furnished with the certificates pertaining to the investments. He was disturbed upon discovering that the second respondent was no longer in possession of an FSP license.
Boemah turned to the FAIS Ombud during September 2014, seeking relief against the respondents. He wants the respondents to release his total investment in the amount of R144 713. The amount is confirmed by the respondents’ statement.
Respondent’s response
The complainant, in his complaint, makes the point that he was invited to invest in a fixed savings where he could opt out at any time without any cost implications. The respondents have not denied this. In their response, they simply said that the complainant had agreed to the investment. At the very least, according to the Ombud, the respondents were the factual cause of the investment.
The simple line taken by the respondents in their response is that the complainant had signed the Client Advice Record, in which he had agreed to monthly payments for 60 days without access to his funds. The respondents attached to their response copies of the investment agreement and a page titled, ‘Invoice/Client Advice record’. The agreement was signed by the first respondent and the complainant.
Notwithstanding several reminders, the respondents, according to the Ombud, failed to respond to the notice by the Office. The complaint however, remains unresolved.
The complaint is therefore determined without the benefit of the respondents’ full version of events to the FAIS Ombud.
The Office’s stance
A close examination of this document was necessary.
The FAIS Ombud highlights that the document forwarded by the respondents only had the complainant’s name, address and signature. Other than that, the document contains no other details regarding the complainant.
The Ombud said there is no information with regard to the complainant’s personal financial circumstances, his needs, objectives, financial product experience, risk appetite and tolerance.
The aforementioned, according to the FAIS Ombud, are just some of the details a provider would need in order to conduct an analysis to meet the goal of recommending a solution that is suitable to the client’s circumstances.
The question that comes to mind, the Ombud said, is against what background the provider concluded that this investment is suitable to the complainant’s needs and circumstances. “The answer is simple; the document was never intended to be a record of advice as envisaged by the Code.”
The respondents, according to the FAIS Ombud, failed to meet the standard prescribed by the Code and are ordered to pay to the complainant the amount of R144 713.
Editor’s thoughts:
A wise lesson to learn. When one reads about determinations, there is often a need to identify and understand the implications of the potential effects of these actions. More importantly, when we learn the undesirable consequences of other people’s actions this helps us determine the steps we need to take to avoid, mitigate, change, or eliminate these consequences from happening to us. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]
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