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Renier Lombard approached the FAIS Ombud claiming that his adviser, Mark Colley, wrongfully invested his retrenchment money into a high risk property fund, which resulted in him losing nearly everything. Lombard claims that he requested for his funds to be placed in a low interest, low risk fund.
The complaint arises from investments made by Renier Lombard into Unregulated Collective Investment Schemes (UCIS), on advice of Pioneer Wealth Managers (Pty) Ltd, a licensed financial adviser, and Mark Colley (the respondents), currently noted in the regulator’s records as a representative of Anchor Capital (Pty) Ltd who traded under the first respondent’s license. Renier Lombard’s (the complainant) issue is that Mark Colley and Pioneer Wealth Managers (Pty) Ltd advised him to invest in a high risk investment, which the complainant claims were incompatible with his personal circumstances.
We summarised the determination for you but you can download the original determination here.
Some background
The complainant was advised to invest in a property fund despite requesting a low risk, low interest investment. Brandeaux and Glanmore (the investments in question) are considered high risk and speculative investments, suitable only for high net worth, or sophisticated investors who are prepared to take on a high degree of risk with their money. UCIS can be characterized by a high degree of volatility and or illiquidity.
During 2006, the complainant approached the respondent with a view of reassessing his financial position; he was 57 years of age at the time. The complainant was employed as an Export Administration Manager and retrenched by his employer in 1996 at the age of 47. He had invested his retrenchment pay-out with local insurers but was of the view that, because of the state of the economy at the time, an offshore investment might be better suited to his circumstances.
Trusting the advice of investors
Upon advice from the respondent, a five-year endowment policy was secured with insurers African Harvest / Scottish Life in the amount of €132 545.78. The underlying investment consisted of two UK UCIS, namely, Brandeaux and Glanmore. This amount consisted of the complainant’s entire life savings. The respondent is alleged to have assured the complainant that investing in property in the United Kingdom is tantamount to “having cash in the bank”.
The investment commenced on 16 July 2007. During the course of the investment, the complainant regularly received detailed statements, originally from Sygnia Life Limited, then Scottish Life International and finally Royal London 360?, detailing various charges levied or payable. The complainant alleges that the charges on the statement were in excess of those indicated in the original policy document and were not agreed to by him.
The investment value depreciated substantially over time. At the time of lodging the complaint in July 2013, the value was less than 50% of the initial investment. A statement dated 27 February 2015 provided by the complainant confirmed that the value of the investment had diminished by 84.2% of the initial capital.
Why things went wrong
The complainant’s case against the respondent is that the latter gave him advice that was inappropriate given the respondent’s knowledge of his personal circumstances. The complainant claims that his mandate to the respondent was to minimize risk whilst striving for capital growth and a high after tax return.
The respondent admits to having invested the complainant’s funds in high risk investments even though he knew that the complainant had no capacity to risk his life savings. The respondent went against the results of his own risk profiling, which indicated that the complainant had no capacity or tolerance for high risk investments.
The complainant’s profile identified him as a conservative, borderline moderate risk. He had prematurely retired and considered the investment risk to be conservative / moderate. It is the respondent’s view that he was not negligent, in light of the fact that the investment matched the complainants’ risk profile and calls for the complaint to be dismissed.
Determination
According to the FAIS Ombud, the respondent’s version is that he had not carried out any work to familiarise himself with the risk involved in the two funds, Brandeaux and Glanmore. For the respondent to even suggest that the risk involved in the two unregulated collective investment schemes was conservative shows that the respondent had no understanding of what he was doing, yet he advised the complainant the funds were in line with his risk profile. Unregulated collective investment schemes, the world over, are known as high risk investments, not suitable to conservative clients. On this basis alone, the respondent should be held liable for the complainant’s losses.
The respondents are ordered to pay the complainant, jointly and severally, the one paying the other to be absolved, the amount of R800 000, interest on this amount at the rate of 10.25% per annum from the date of determination to date of final payment.
Editor’s thoughts:
It is concerning how one small incident can damage the reputation of an adviser and no adviser wants to face the harsh rulings of the FAIS Ombud. By presenting information in a clear, concise and effective manner and keeping records, advisers can possibly escape these kinds of harsh rulings. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts mailto:[email protected]
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