More Fidentia fallout 24 months down the line!
The FAIS Ombudsman’s latest determination addresses capital losses suffered due to the ongoing Fidentia Asset Management scandal. The complainants (Marna and George Russouw of Nahoon, East London) had invested R210 000 in certain Fidentia Group investments on the advice of the respondent (Willie Jordaan). These investments were effected through one Hermann Heydenrych, a trustee of the Antheru Trust, and subsequently ‘lost’ when the Fidentia business was placed in the hands of curators. In their complaint, the Russouw’s allege “the prospects of recovering the capital investment are remote.” They also claim they would never have invested their funds if “Jordaan had disclosed how high the commission was that he and the Antheru Trust were receiving from Fidentia…”
Chasing unattainable returns is a sure warning sign
When the complainants first met Jordaan he was employed as a financial advisor by Sanlam Life, though his contract with the company was terminated following a disciplinary hearing in May 2007. After explaining a range of investment options, including Sanlam Unit Trusts, the complainant noted the returns in these products were inadequate for his needs. At this point Jordaan introduced the Fidentia products with promise of much higher returns. He advised the complainants they would receive 18% per annum on their investment. Against this promise the complainants invested R120 000 on 25 October 2004. On 30 May 2005 the complainants invested a further R90 000 after Jordaan told them they could earn 20% per annum on investments of R200 000 or more.
When the complainants learned of Fidentia’s woes they wrote a strongly worded letter to Jordaan. They claimed that he had dismissed their initial fears about the ‘high’ returns and had failed to disclose his 6% per annum (apparently paid as 0.5% per month on the invested amount) commission. The complainants weren’t the only Sanlam clients who were advised in this way. “Sanlam’s investigations revealed that Jordaan had placed investments of nineteen clients with Fidentia,” says the Ombudsman. Seventeen of these clients (with a total investment value of R2.19 million) were still invested with Fidentia when the company was placed under curatorship.
Too many contraventions of the FAIS Act
The 18-page judgement identifies numerous blatant contraventions of the FAIS Act and the accompanying General Code of Conduct for Authorised Financial Services Providers. Similar issues repeatedly crop up in FAIS Ombudsman determinations against financial services providers and their intermediaries:
- The respondent failed to provide copies of the “records of financial advice” referred to in Section 9 of the General Code when requested to do so.
- The respondent ignored Section 7(1) (c) of the General Code which states that a provider must “at the earliest reasonable opportunity, provide, where applicable, full and appropriate information of the nature, extent and frequency of any incentive, remuneration, consideration, commission, fee or brokerages which will or may become payable to the provider, directly or indirectly, by any product supplier or any person other than the client as a result of the rendering of the financial service”
- The respondent ignored Section 2 of the General Code, which states: “A provider must 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 respondent contravenes section 3 (1) (d) which requires “the service must be rendered with due regard to the interests of the client which must be accorded appropriate priority over any interests of the provider.”
- The respondent failed to supply information of “any material investment or other risks associated with the product” as required in Section 7 (1) (c) (xiii)
- The respondent failed to complete a financial needs analysis as required in Section 8 of the General Code
Broker liable for the entire loss
The FAIS Ombudsman had two issues to decide. The first was whether Jordaan’s employer (Sanlam Life) had any liability in the matter. And the second was whether Jordaan was responsible for the loss in his personal capacity. The Ombudsman quickly absolves Sanlam: Unlike the “case of Elizabeth September v Sanlam Life Insurance Limited FOC1291/07-08/EC (1) where the complainant was led to believe that the Fidentia investment was a Sanlam product” it’s clear Jordaan “embarked on a frolic of his own!”
Thus on 18 March 2009 the FAIS Ombudsman determined in favour of the complainants. He ordered the respondent to repay the full amount of the investments made plus interest at 15.5%. Copies of the determination were forwarded to the Registrar of Financial Services Providers for further investigation into the conduct of Heydenrych and Antheru. But there won’t be immediate closure in this case. The Ombudsman ruled that any capital returned to the complainants from the curators of the Fidentia accounts should be deducted from the R210 000 first. The curators have been ‘busy’ since February 2007 and we’ve hardly heard a word about the progress made since then!
Editor’s thoughts: On the facts presented in this determination it’s difficult to draw a different conclusion. The financial adviser has skipped too many of the basic steps required to provide a professional service – and it’s clear the lure of excessive commissions has swayed his judgement. Do you still encounter financial products with ridiculous commission structures? Add your comments below, or send them to [email protected]
Comments