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Who’s to blame?

13 May 2019 Myra Knoesen

In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complainant lodged a complaint against the respondent, arising from a loss incurred.

The sale of shares

The complainant, Ms Tasha Christelle De Beer, a 45-year-old unemployed former employee of Netcare, was, during 2011, contacted by the respondent, Sophia Elizabeth Coetzer t/a Downstream Trading, who had notified her that she had a number of unclaimed shares with Netcare.

A meeting was arranged for February 2011 with De Beer and her husband and based on the Coetzer’s recommendation, De Beer agreed to sell the shares held in Netcare, with the proceeds being used to purchase shares in Unimin African Resources (Unimin). De Beer had subsequently signed a letter of appointment in favour of Downstream Trading as her representative, and after the sale of all the shares in Netcare, which yielded an amount R750 000, an investment of R600 000 was made into Unimin on 11 February 2011 and R150 000 was allegedly invested in Platfields. De Beer was advised that she could sell the shares for a profit at a later stage.

Downstream Trading earned a remuneration for its services from both De Beer and Unimin Diamond.

Unable to access funds

De Beer alleged that Coetzer failed to disclose to her that a commission of R178 000 will be earned from the transaction. This was 20% of the value of the transaction.

During 2012 De Beer requested Coetzer to assist her with selling her Unimin Diamond and Platfield shares, it was then that she became aware that Unimin shares were changed to ordinary shares which cannot be sold and that the Platfield shares were worth only R3000, a fraction of the R150 000 invested.

De Beer has to date been unable to access her funds and they have for all intents and purposes been lost.

De Beer seeks payment of her capital in the amount of R750 000. The basis of the De Beer’s complaint against Coetzer is that Coetzer failed to render financial services in line with the General Code of Conduct, (the Code) which inter alia, enjoins FSPs to render suitable advice and make adequate disclosures when advising clients.

The respondent’s version

Coetzer claims that she conducts the business of a tracing agent in respect of unclaimed securities and dividends under the name and style of Trace Solutions. She claims that she works from leads provided by a database where after having traced the respective individual she would assist with the replacement of share certificates etc. All of this is done in return for an agreed upon percentage of the value of the unclaimed shares.

It is Coetzer’s assertion that should the client wish to dispose of the shares she ostensibly refers them to PSG Konsult Financial Planning and her involvement would then cease. She therefore denies, despite being licensed to provide both advice and intermediary services with regards to shares, to in fact having rendered a financial service as contemplated by the FAIS Act.

She stated that she charged a fee of 20% of the value of the transaction which comprised of an amount of R178 000 which was duly paid to her. She thereafter stated that she decided to give De Beer a discount of the fee which took the form of Platfield shares from her own portfolio, comprising a value of approximately R150 000 at the time of the transaction.

She does however admit that in a meeting during February 2011, the topic of Unimin had arisen. Despite her claims that she had advised De Beer that she was unable to advise on such an investment and that De Beer would have to do her own research in this regard, she had directed De Beer to Unimin’s website and told her that she was well acquainted with the company’s CEO.

Coetzer therefore remains firmly of the view that De Beer had conducted her own research into Unimin and that she had as a result fully understood the risks associated with such an investment.

The remainder of Coetzer’s response is focused on addressing numerous allegations raised by De Beer, and she once again denies having made representations to De Beer with regards to the anticipated return of the investment, and that it would generate greater returns than the Netcare shares.

Coetzer also reiterates her claims that De Beer had knowledge of the risks involved and that De Beer alone had made the decision to invest, without her having made any representations enticing De Beer to invest in Unimin.

The FAIS Ombud’s stance

According to the FAIS Ombud, Coetzer breached a number of provisions of the Code. There is sufficient information, the Ombud says, to demonstrate that Coetzer had not been candid with De Beer about the nature of the investment.

According to the FAIS Ombud, Coetzer advised De Beer to move her funds from Netcare to Unimin. The transaction with Unimin was concluded only after Coetzer had approached De Beer with regards to the unclaimed shares that De Beer held with Netcare. Without Coetzer having intervened, this transaction would never had been concluded. Not only did this transaction satisfy the definition of advice, but there is no question that between De Beer and Coetzer, there existed a contractual relationship to render financial advice, says the Ombud.

The risks in the investment, according to the Ombud, were not disclosed, despite having had access to all the relevant and available information pertaining to De Beer, that the recommendations made were appropriate to De Beer’s needs and circumstances. No documentation exists to indicate that the complainant had been informed as to the implications and consequences of replacing the Netcare shares with shares in Unimin.

The failure by the respondent to fully disclose all the material aspects canvassed in this determination, the Ombud says, would mean that De Beer had not been placed in a position to make an informed decision.

As a consequence of the numerous breaches of the Code, the Ombud says Coetzer committed a breach of her agreement with De Beer in that she failed to provide suitable advice.

The Ombud concluded that the investment in Unimin was the consequence of Coetzer’s conduct and ordered Coetzer to pay De Beer the amount of R750 000.

Editor’s Thoughts:
Coetzer admitted that she had directed De Beer to Unimin’s website but advised De Beer that she was unable to advise on such an investment and that De Beer would have to do her own research in this regard. Having been informed, surely De Beer conducted her own research and fully understood the risks. But maybe it’s a matter of, ‘this conversation should have never happened,’ because Coetzer advised De Beer to move her funds from Netcare to Unimin. Without Coetzer having intervened, this transaction would never had been concluded. So, who failed who? Is it the respondent that failed De Beer, or did De Beer fail herself? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za

Comments

Added by kenny, 13 May 2019
With reference to the comment above. I once had a situation, where th client insisted that i had not explained the increases (who knows how complicated this has become for some products) on a life policy.
Luckily i looked at the quote and i had made them sign right next to increases as well (so, i must have had a feeling). Luckily this saved unnecessary nonsense.
I also wonder (if i hadnt done this) where that would have stood with the ombud... probably ruled against me... as it seems you would have to explain each and every single little point in the record of advice. Oops there goes your week and bye bye to client who is moving on whilst you explain.
I do agree with decision above though.
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Added by CraigA, 13 May 2019
I don't think the broker failed, they were driven by greed and they should be held responsible! How generous to give the client a discount of R 150k worth of shares that were actually worth almost nothing. I am sure that the broker 'sold' them to the client. The client deserves to paid back by this unscrupulous broker!
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Added by Peter Dexter, 13 May 2019
It would appear that Coetzer's failure to confirm in writing (as a record of advice) what she claims to have told De Beer is the primary issue. Without this it just becomes a litany of "You said- I said." All hearsay.
Back in the early 1980's I gave a client advice (Supported by a written record) which he elected not to follow. 10 years later when the investment he chose (against my advice) turned out to be disappointing, he blamed me and claimed that I had recommended it. Fortunately I had the record of advice to jog his memory. That was long before FAIS but the principle remains. Record keeping is everything!
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