Two's company, but three's a crowd
It is often said that too many cooks spoil the broth. Looking at a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the same can be said when we look at how many respondents were involved in the matter.
The complainant, James Bruce Wallace, filed a complaint against the respondents; CS Makelaars Bk (the first respondent), Emile Storm (the second respondent), Momentum Group (the third respondent) and Ian Marais (the fourth respondent) requesting the respondents to return lost capital in an investment that was, according to him, inconsistent.
Were it all began
During September 2009 Wallace consulted Marais, his broker, at Momentum about investing his mother’s money. His mother, who lives in the UK, after having moved there from South Africa the previous year, had one million rand available for investment.
Wallace informed Marais that he had the authority of his mother to invest the money on her behalf. Of significance, Wallace informed Marais that the investment must be made bearing in mind his mother’s risk profile. His mother was, at that stage, seventy years old and was looking for capital growth and a monthly income.
According to Wallace, Marais introduced an investment offered by a company by the name of Sharemax, but advised that he was not authorised to deal with this product. Marais offered to introduce Wallace to Storm of CS Makelaars Bk.
Wallace again explained to Storm that the money belonged to his mother and had to be invested according to her risk profile.
Storm, in the presence of Marais, recommended an investment in Sharemax. The recommendation came with the advice that the investment was consistent with Wallace’s 70 year old mothers profile and was not considered high risk but moderately conservative and included a monthly income.
Too good to be true
Wallace then went to the UK and discussed this advice with his mother. Her only concern was about liquidity within the investment. Upon his return to the country, Wallace had another meeting with Storm and Marais where the issue with liquidity was addressed. Wallace was informed by Storm that the investment could be sold within four to six weeks and also provided for a loan option. Thereafter, a risk analysis was completed and once again Wallace raised the risk factor in the recommended investment. In the presence of Marais, Storm informed Wallace that in his opinion this was actually a low risk investment.
On the 19th November 2009, an amount of R730 000 was deposited into the account of Weavind and Weavind attorneys. Of this money, R600 000 was Wallace’s mother’s money and he put some of the funds in the investment in his wife’s name, Simone Wallace, due to a tax benefit and he also invested R130 000 of his personal funds.
Wallace explains that he was advised that the investment to be made was as follows: “The portfolio was to be split, R400 000 into a no risk savings with Momentum that would remain liquid, the remainder to be invested into Sharemax “the Villa” to preserve capital and produce a dividend, which in turn was to be reinvested into a moderate risk portfolio with momentum.”
About a year after making the investment, Sharemax stopped making payments of the promised returns on this investment. Wallace found out that the company was in financial trouble and had been placed into business rescue. Wallace then filed a complaint with the FAIS Ombud stating the respondents gave him inappropriate financial advice resulting in loss of all the capital.
He said, she said
Momentum point out that Marais was prohibited from promoting and selling financial products not approved by them. Momentum denies any liability. The duty, according to them, to disclose risk and to keep a record of advice resided with Storm and not with Marais or Momentum.
Marais’ version is that Wallace approached him and enquired about Sharemax. Marais informed Wallace that in terms of his employment contract with Momentum, he was not authorised to sell the Sharemax product. Marais told Wallace that he knew a broker who was authorised to sell the Sharemax product and proceeded to introduce Wallace to Storm.
Storm agrees that Marais introduced Wallace to him. Storm’s version is that he did not recommend Sharemax to Wallace, but that the latter had made an inquiry about Sharemax. Storm stated that he referred Wallace to Sharemax’ s marketing materials where the latter informs that the investment complied with all legal requirements and clients enjoyed full protection and the investment was low risk, delivered good monthly income and capital growth. Wallace signed a declaration that it was explained to him and that he understood it.
The respondents submit that Wallace made an independent and informed choice to invest in Sharemax. Storm and Marais deny that they had advised Wallace that the investment was low risk. Instead Storm submitted that he told Wallace that the investment was risky. Marais also submitted that he did make Wallace, his client, aware of the risks associated with property syndications.
Wallace argued, “Had he in fact done so, I would never have invested my mother’s retirement into this scheme.”
According to the Ombud, if Marais was acting in good faith and in the interests of his client, the Ombud says he would have advised Wallace to keep his entire investment within Momentum. The FAIS Ombud believes Wallace was persuaded to invest his mother’s pension in Sharemax by the joint efforts of Marais and Storm.
For that reason, the Office determines that the respondents pay R730 000 to the complainant.
Editor’s Thoughts
According to the respondents they acted honestly, in good faith and in the interests of the client and Wallace signed a declaration that the investment was explained to him and that he understood it. So do you believe that Wallace’s loss was caused by the actions of Storm and/or Marais? Or do you believe this is another case were records of advice should have been kept safe to prove innocence? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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