Ombud slates Old Mutual for altered investment documents
Insurance giant Old Mutual’s seemingly solid defence against a 93-year old pensioner who complained he had suffered financial losses in an investment has been smashed by the Ombud for Financial Services who found documents had been altered to suit the evidence.
Hermanus Gerhardus Raman of Centurion, Pretoria, complained to FAIS Ombud Charles Pillai that the Old Mutual Life Assurance Company, represented by Ernie Lottering, had caused him to suffer financial losses as a result of inappropriate advice and related issues of non-compliance by Lottering when he rendered a
financial service during April 2006.
In ordering Old Mutual to compensate the complainant in the sum of R40 359.05, Pillai said the respondent had seen the complainant as a conservative investor and yet completed the documentation post sale in a manner consistent with a profile of a moderate investor.
“The only rationale conclusion is that the product was first sold and the compliance documentation completed thereafter in a manner so as to align it with the product.
“This was done, in my view to make it appear that all formalities had been complied with,” Pillai said.
Raman, who was 90 years old at the time of rendering the financial service on 4 April 2006, told the Ombud that acting on the advice of Lottering, he withdrew R560 000 from his Standard Bank savings account and invested it in the Old Mutual “Dynamic Floor” unit trust fund.
Complainant’s need was for a safe fixed investment to supplement his pension. Lottering promised that this would be complainant’s best investment ever with a 90% guarantee on capital and guaranteed income of R5 000 per month.
The income represented an increase of a R1 000 per month on the interest complainant was earning from his existing savings account at Standard Bank. The investment was apparently presented using sophisticated computer presentations, which complainant claims not to have understood. Complainant contends that had he been presented with actual figures, and the attendant risk better explained he would not have invested in the product.
He explained that whilst the 90% guarantee initially sounded good, given that he did not work with figures on a regular basis he had no comprehension that this meant that only R504 000 was guaranteed.
Complainant contended he did not really understand the product; was unaware of the commission of R18 194. 40 or that the investment was in a Unit Trust.
Complainant received an investment statement dated 17 July 2006, by which date three R5 000 payments had been received by him. He noted that his fund value now stood at R492 836. 16. This represented a decrease of R52 163.84 even after taking
into account the R15 000 already withdrawn.
Complainant wished to disinvest at this early stage, but was convinced by Lottering to remain in the investment. Complainant eventually withdrew from the investment on 7 August 2008 and received the sum of R450 833, 41 on disinvestment.
In written response to the complaint dated 17 October 2006, Charles Milne, Deputy Internal Arbitrator, Old Mutual, states the following:
“Having considered the documentation presented, it is our respectful view that there is insufficient evidence of any negligence or misrepresentation on the part of the Old Mutual Financial Adviser.
“It is noted further that neither Mr. Raman, nor his son, raised any concerns during the meeting regarding the risk profile or workings of the product, thereby indicating that the investment vehicle was understood and accepted.
“One must not lose sight of the fact that Mr Raman affixed his signature to the relevant documents, thereby declaring that the product was fully explained to him, and understood by him.
“With the evidence available to us, it is our respectful submission that by signing (amongst others) the Client Advice Record, Mr. Raman accepted the product after due consideration and was satisfied that a full disclosure had been made.”
Annexed to this letter were various documents.
In his ruling, the Ombud said the respondent in essence relied on the annexed documentation to support its claim of proper disclosure, appropriateness of advice and due consideration of all the facts leading up to the recommendation of the
financial product eventually sold.
“Quite simply respondent’s case to a large degree turns on whether its version aligns with the evidence as set out in the documentation.
“Analysis thereof has, however, raised certain inconsistencies,” the Ombud said.
The Ombud found that the Fund Structure Document - Old Mutual Dynamic Floor Fund - describes the fund structure of the investment. The fund is described as moderate risk and according to the marketing brochure strives for long-term capital growth as well as some level of capital protection. The fund invests across shares, bonds and cash moving from shares into fixed interest investments when the fund value drops below a predetermined ‘floor’.
“Whilst the aim of the fund is to avoid capital losses greater than 10% over any 12 month period there is no explicit guarantee in this regard.
“Whether the investment carried a guarantee or not links directly to complainant’s understanding of this investment,” the Ombud said.
In examining the Risk Assessment Document, the Ombud found that it showed the complainant as having a moderate risk profile. It is signed by Lottering and complainant and dated 4 April 2006;
“The answer to a question as to the time frame within which complainant intends to start withdrawing the money is given as ‘6 – 9’ years.
“In response to a query from this Office as to why the time frame was given as ‘6 - 9’ years, considering that withdrawals would start almost immediately, respondent contends that this relates to a capital withdrawal and not the R5 000 monthly withdrawals.
“Considering complainant’s age, respondent’s answer in itself immediately raises questions,” the Ombud said.
Referring to two versions of the Risk Assessment Document, the Ombud found that they were identical but for the fact that one version is not dated nor does it contain Lottering’s signature whilst the other version has the date and Lottering’s signature;
“It is obvious that the date and Lottering’s signature was inserted at some later point.
“Whilst both documents are part of the response dated 17 October 2006, one was originally attached to a letter from Lottering to complainant dated 18 September 2006 whilst the other appears to have been part of the Unit Trust Buying Form despatched by facsimile on 11 April 2006 to respondent’s head office.
“It is evident from the above analysis that one version of the Risk Assessment Document was altered after the fact to include Lottering’s signature and add the date of 4th April 2006.
“The addition of such signature and more particularly the date 4th April 2006 is highly irregular and evidences a pattern of altering documentation material to this case.
“It is evident that this document could not have been signed by Lottering on this date,” the Ombud said.
Referring to the Client Advice Record, the Ombud said that this document, in contrast to the Risk Assessment Document, reflects complainant’s risk profile as conservative as opposed to moderate.
“Respondent’s response in this regard is that this was a simple error on Lottering’s
part. I am not persuaded that is in fact the case,” the Ombud said in his ruling.
A tick box format of the Client Advice Record reflects that the adviser was not able to conduct an analysis as the complainant had not provided all the necessary information.
“What is striking though, is that this document is reflected as having been signed by complainant on the 7 April 2006, by Lottering on 10 April 2006 and by a manager by the name of ‘PJ Venter’ on 11 April 2006.
“This is some time after the actual investment was made and starts to raise serious questions as to whether this documentation is an accurate representation of events or merely an attempt to align the documentation to an investment that had already occurred,” the Ombud stated.
In looking at two copies of the Unit Trust Buying Form submitted as evidence by the respondent, the Ombud said the two documents were exactly the same, except in two material respects:
The addition of the commission amount of ‘R15960’ at the bottom of one document.
The same amount being added to next to the commission percentage on the other document.
One document was attached to respondent’s version dated 17 October 2006 and the other similar document accompanied the response from Mr Brits in March 2008.
“Brits refers to the commission in his reply and pertinently states ‘the client signed page 2 where the commission was indicated as well as the amount written down’.
“The conclusion is, therefore, inescapable that the commission amount was only reflected on this document some time after the actual transaction,” the Ombud said.
In ascertaining whether or not, in respect of this transaction there was compliance with the provisions of the FAIS Act and General Code, the Ombud examined the risk profile analysis carried out by respondent.
“Prima facie it would appear that all material requirements of the FAIS Act had been complied with. However, a more in depth enquiry paints a somewhat different picture.
“On a consideration of the available facts and after an analysis of the documentation provided, I am not persuaded that the risk profile adequately reflects complainant’s situation.
“The term within which complainant intends to start withdrawing money is given as 6 – 9 years. Now whilst one wishes the complainant a long life, given that he was 90 at the time at the time of making the investment the 6 – 9 year time frame is in my view a bit too optimistic.
“Respondent claimed that the time frame reflected the stage at which complainant might withdraw the capital amount, meaning the lump sum. However, the R5 000 monthly payments are in fact obtained by drawing down on the capital amount, a fact
not evident from the documentation.
“Clearly there was no rational explanation for putting complainant in this category.”
Commenting on his analysis of the documentation, the Ombud said the Client Advice Record was signed by complainant three days after signing the Unit Trust Buying Form.
“These alterations compel me to conclude that the Record of Advice and Risk Profile cannot be accepted as an honest reflection of events that took place during the rendering of the financial service.
“Assuming that there had been compliance with the FAIS Act and General Code as contended for by respondent, the following questions arise: firstly, why the need to alter these documents; secondly why does the advice record appear to have been completed three days after the unit trust buying form was signed.
“Given that respondent in fact saw complainant as a conservative investor and yet completed the documentation post sale in a manner consistent with a profile of a moderate investor, the only rationale conclusion is that the product was first sold and the compliance documentation completed thereafter in a manner so as to align it with the product.
“This was done, in my view to make it appear that all formalities had been complied
with.”
The Ombud said there was no evidence from the documentation that any attempt was made to caution complainant on the potential downside to this investment; specifically that his entire investment was exposed to market movements.
Whilst the advice record correctly noted that, given his age, complainant could draw a higher income than the R5 000 per month, no mention was made of the potential impact that such withdrawals would have on capital in the event that the investment did not
perform as expected.
Turning to his analysis of the two versions of the same Unit Trust Buying Form, the Ombud said one version of the form fell short of the FAIS Act as the fees were not “reflected in specific monetary terms”. The actual amount in this instance was easily
determinable and as such required to be clearly reflected.
Referring to the other version of the form, the Ombud said, it was evident that the figure of R15 960 was added at a later stage and respondent relied on this altered document in support of its claim that the advice fee was disclosed.
“The inescapable conclusion is that the documentation was amended to mislead one into believing that necessary disclosures in respect of fees had been made.
“Regrettably, and in his haste to add the figure of R15 960, 00 respondent failed to take into account the VAT portion of R2 234, 00. The true inclusive cost to complainant was actually R18 194, 00.
“This attempt to deceive on Lottering’s part is indicative of a lack of honesty and Integrity,” the Ombud said.
In assessing whether the investment was appropriate to complainants’ circumstances, the Ombud said this investment was not meant for complainant and it would have been more appropriate to have left him where he was.
The Ombud said the respondent’s conduct violated the General Code and as a result complainant suffered a loss.
The respondent was ordered to compensate complainant in the amount of R40 359, 05 plus interest which he would have earned had he remained at Standard Bank.
