During September 2009 James Wallace, the complainant, consulted his Momentum representative, Ian Marais, about investing his mother’s money as well as some of his own.
His seventy year old mother resided in the UK, and he was empowered to make investments on her behalf.
According to the Complainant, Marais mentioned an investment offered by Sharemax and advised the client that he was not authorised to deal with this product. Marais then offered to introduce Wallace to Emile Storm of CS Makelaars, who was.
Marais and Storm saw the client together.
Wallace explained that he was advised to make the following investment:
“The portfolio was to be split, R400 000 into a no risk savings with Momentum that would remain liquid, the remainder to be invested in Sharemax “the Villa” to preserve capital and produce a dividend, which in turn was to be reinvested into a moderate risk portfolio with Momentum.”
On 19 November 2009, an amount of R730 000 was deposited into the account of Weavind and Weavind attorneys for investment with Sharemax. Of this money, R600 000 was Wallace’s mother’s money and R130 000 was Wallace’s own funds.
About a year after making the investment, Sharemax stopped making payments of the promised returns on this investment. After consulting with what the determination terms “other experts”, Wallace laid a complaint with the Ombud on 20 December 2010.
All Sharemax related complaints were held in abeyance following the successful appeal by the company’s directors in April 2015 against the Ombud’s decision to hold them equally accountable in the Siegrist and Bekker complaint.
The Ombud upheld the complaint by Wallace and ordered that all four respondents, which included Momentum, jointly and severally, pay back the complainant’s capital of R730 000.
Momentum held liable
The Ombud also held that “…the conduct of Marais, in advising and collaborating in the Sharemax investment, was sufficiently close to his employment with Momentum to render the latter liable.”
“In the premises I make the following findings:
- Marais’ conduct in advising Wallace was expressly authorised by Momentum;
- His conduct is necessarily incidental to his work as an FSP representing Momentum;
- I accept that Marais’ advice to invest in Sharemax was not in itself authorised by Momentum and it does amount to a deviation from his contract of employment. However this does not absolve Momentum from liability as Marais’ conduct was reasonably incidental to his work with Momentum.
- Momentum further relies on the terms and conditions of the Financial Planner Agreement between themselves and Marais. I deem it unnecessary to deal with the terms and conditions of this agreement as Momentum cannot rely on this agreement as against an innocent third party.”
The matter of employer liability was covered in great detail in the FNB/Newlove Appeal Board case, although the circumstances differ substantially from those in the Wallace case in that the alternative product was clearly distinguished from those offered by the employer as opposed to the Newlove case where the client assumed it was a FNB product.
There are three requirements for vicarious liability:
- An employer / employee relationship should exist at the time when the delict is committed;
- The employee must commit a delict and
- The employee must act within the scope of his employment when the delict is committed.
It will be interesting to see whether this determination will be tested at the Appeal Board as it is bound to have severe repercussions for all FSPs who employ representatives.
Advice restrictions
Throughout the determination, the Ombud refers to the duty and obligation on Marais to advise his client of the appropriateness of the Sharemax investment. In the section dealing with Momentum’s involvement in the matter, it states:
“Momentum also bizarrely suggests that this office would be forcing Marais to contravene the Act by insisting that he should have advised Wallace not to invest in Sharemax. As a licensed FSP, Marais was under a duty to advise his client that Sharemax was not appropriate for his needs and risk profile. Marais was certainly in breach of the Act and Code.” (My underlining).
We respectfully disagree with the Ombud in this regard. The FAIS Act expressly forbids the provision of advice on products for which one is not licensed. To have advised the client that the product “…was not appropriate for his needs and risk profile” would, in our view, indeed have been a contravention of the Act, as stated by Momentum.
It should also be noted that Marais acted as a representative of Momentum, and was not a licensed FSP, as stated above.
