A reader recently enquired about laying a complaint with the office of the FAIS Ombud.
The enquiry stemmed from an investment that one of his clients made in the calamitous RVAF scheme, which was in the news recently as a result of four findings against one advisor by the Ombud.
We discussed the complaint process, which is set out on the Ombud’s website. There is also a technical advice desk to assist clients. From the wording in the above-mentioned determinations, it appears that those clients did indeed obtain professional assistance. This is commendable, as most members of the public are not au fait with the relevant legislation. During our discussion it occurred to me that there could be a serious problem for clients where multiple claims are laid against a particular advisor.
Multiple findings
There are at least five instances that I can recall where a number of complaints were laid against one advisor. It appears that those at the back of the queue are likely to get a ruling in their favour, but unlikely to be recompensed, simply because the advisor involved is unable to come up with the money. Two of these instances were short-term related, and three concerned investments.
In one instance, involving property syndication investments, multiple findings were made against the intermediary involved. He appealed, assisted by his PI cover provider, and to the best of my knowledge, the determinations were referred to the courts, where justice, one way or the other, should prevail. The problem, from the client’s perspective, is the time it will take for this to happen.
Time is of the essence
A further issue concerns the date of the loss, and when payment is finally made. In many instances, due to the process that has to be followed, it can take a year or two after the complaint was laid before the determination is made. Most of the orders I read stipulate that interest becomes payable fifteen days after the determination. The client is thus not recompensed for the loss of interest from the time of loss, but only after the determination.
Willing, but able?
The ability of the FSP to reimburse clients for the loss determined by the Ombud is possibly the biggest threat of all, from a client perspective.
In the recent RVAF determinations, the total of the “claims” against one advisor came to a substantial amount, and it seems likely that there are more in the pipeline concerning the same FSP. In addition, the curators of the fund have requested that the FSP pays back all the commission he earned for these investments. Sums ranging between R5 million and R9 million are mentioned.
If the FSP is sequestrated, it would possibly lead to the clients being unable to have their investments refunded, despite the ruling in their favour.
Criminal action
One of the multiple short-term findings concerned an unregistered representative of a FSP who coerced clients to pay annual premiums into her personal account. This was never paid over to the insurer, which meant the clients had no cover. The FSP was held equally accountable for the loss.
The sums involved in this instance were not that big, and it is possible that the clients may have been reimbursed, but what about the illegal actions of the representative, and the lack of proper supervision by the FSP?
The insurer involved laid criminal charges against the representative, but nothing more was heard of since. The FSP’s licence, according to the FSB website, lapsed on 27 June this year. It is not clear whether this resulted from regulatory action, or whether the key individual opted out of his own accord.
Ignorance is bliss
Then there are also a number of adverse findings against two individuals who sold unlisted shares in what appears to be bogus companies. They too, were not registered with the FSB, and did not even bother to respond to the allegations in the latest complaint when given the opportunity by the Ombud to do so. It appears doubtful that they will adhere to the order to recompense the client, given in the determination against them, and despite the fact that it carries the same legal power as an order of the High Court.
The following statement appears on the website of the Ombud:
The objective of the FAIS Ombud is to consider and dispose of complaints by clients against financial services providers in a procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all the circumstances.
Perhaps thought should be given to what happens after findings in favour of the client. If not, they will have to resort to legal proceedings, which rather defeats the objectives stated above.
