Don’t count your chickens before they hatch
In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complaint arises out of a financial service rendered in respect of an investment in a property syndication promoted by PIC Syndications Ltd.
The complainant, Patricia Goddard, holds Michelle Georgina Van Wyk (the first respondent) responsible for not pointing out, at the time of giving her advice, that the investment was a high risk.
A drop in a bucket
On 10 October 2009 Goddard made an investment with PIC Syndications (PIC) in an amount of R550 000. She was promised a guaranteed interest of 12.5% per annum, payable monthly.
Goddard’s funds came from her late husband’s life insurance and she had deposited the funds in a bank account. She found that the interest paid by the bank was inadequate for her needs. As a result, she called van Wyk and asked her if she knew of a better investment.
Van Wyk arrived at Goddard’s house in the company of Henk Strydom, who she describes as “broker consultant of Picvest”. Goddard was offered various alternatives with insurers but the best return, of 12.5% was offered by PIC. The investment had to be over a period of five years.
Both van Wyk and Strydom stressed the fact that the interest was “guaranteed under a head lease”. Van Wyk even stated she was investing R300 000 of her own money into PIC and Goddard saw this as a good sign; but according to Goddard this turned out to be a lie.
A slap on the wrist
Interest payments were received, as promised, until the end of March 2011 when the interest rate was reduced to 6%. Eventually this was reduced further to 2%.
Goddard called van Wyk and requested her money back. Van Wyk called Strydom who informed them that Goddard could not get her money out. After complaining about this van Wyk sent Goddard a form to complete. The form made it clear that van Wyk will not be selling Goddard’s shares and all further queries were referred to Strydom.
Goddard makes it very clear that she only invested in PIC because the respondents assured her that the income of 12.5% was guaranteed and the company could not possibly fail. She finds herself in financial trouble as she cannot survive on the reduced interest. She requested that her shares be sold at their original value as soon as possible.
She subsequently found out that she was the only client that van Wyk placed into PIC. Goddard was then advised that the “rescue company” had found new investors but that her investment had to be locked in for a further five years instead of the three remaining years.
She makes it clear that she does not hold van Wyk responsible for PIC’s failure. The complaint is that van Wyk was aware of her financial circumstances, in particular, that she had no tolerance for risk, and yet advised her to invest in a product that was inappropriate.
One’s head above water
In response, van Wyk set out her submissions as to why she and her close corporation should not be held liable for Goddard’s loss.
In January 2008 Goddard contacted van Wyk and requested quotes. As mentioned in the affidavit, quotes were provided from Liberty Life, Old Mutual, Sanlam and Momentum. Goddard decided not to proceed with these on the basis that they produced inadequate income. Van Wyk’s submission is that Goddard eventually accepted the principle of risk and reward and acceded to the risk in exchange for income.
According to van Wyk, it was only after Goddard insisted on more income, that she recommend the PIC investment. Van Wyk confesses that she had no experience of the PIC product and she therefore required the guidance of a “supervisor”.
Van Wyk points out that she and Future-Sure Brokers (the second respondent) were not licensed to sell this product and therefore acted as a representative of PIC. Van Wyk reminds this office that when she rendered financial services she was under the “direct supervision of an employee of PIC, Mr. H Strydom” who accompanied her to the meeting with the complainant.
Van Wyk then claims to have carried out “a thorough investigation” of PIC. Quotations showed that PIC promised the highest monthly return on an investment amount of R550 000 and income was guaranteed and capital value of the investment is secured by a guaranteed buy back agreement of the shares at the end of the fifth year.
Van Wyk states that the reduction of income is a contractual and performance issue between Goddard and PIC and this has nothing to do with her. Goddard had signed all the PIC documentation and was fully aware of the risks involved at the time of making the investment.
Determining the matter
The respondents conclude by stating that “the thorough completion of all the documentation regarding the investments” read with the notes made by van Wyk is evidence of compliance with the Act and Code.
We summarised the determination for you but you can download the original determination here and read more on the findings. The FAIS Ombud was of the opinion that van Wyk was an independent FSP and as such was responsible for the advice given to complainant.
In closing, the FAIS Ombud ruled the complaint is upheld and the respondents are ordered to pay the complainant the amount ofR550 000.
Editor’s Thoughts:
Van Wyk states that all the documentation regarding the investments is evidence of compliance with the Act and Code yet the complaint states van Wyk was aware of her financial circumstances, in particular, that she had no tolerance for risk, and yet advised her to invest in a product that was inappropriate. This once again, points out the importance of keeping records of advice. Who do you blame in a situation like this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]
