One of the important elements of the Office of the FAIS Ombud’s (the Ombud) mission is to ensure the fair and expeditious resolution of complaints. However, in a recent determination, Fredrick Hendrik Kotze v Ombud and Another (FAB38/2021), the Financial Services Tribunal (the tribunal) set aside the Ombud’s determination to hold the financial advisor liable for providing negligent financial advice and for the payment of R270 000 (plus interest) in damages to the client (first respondent). The tribunal stated that the Ombud failed in its statutory duty to determine the complaint in a procedurally fair and expeditious manner.
Decision of the Ombud
In October 2006, the client selected one of the investment options provided by the financial advisor in which he invested a small portion of his funds in anticipation of receiving a higher return. In February 2009, the first respondent claimed that the financial advisor was liable for the financial loss he suffered through the investment, when he became aware that the funds were actually invested in the Sharemax property syndication scheme. In 2021, the Ombud ordered the financial advisor to pay the first respondent R270 000 (plus interest) for providing negligent advice which led the first respondent to invest in the Sharemax property syndication scheme. The financial advisor applied to the tribunal for reconsideration of that decision.
The Ombud did not expedite the matter appropriately
According to the tribunal, the evidence indicated that the complaint was filed with the Ombud on 23 February 2011, but the applicant was only requested to provide information to the Ombud on 16 March 2017. Furthermore, the Ombud finally made the determination on 05 February 2021, which is ten years after the initial complaint was lodged. Therefore, it was the Tribunal’s opinion that the Ombud did not handle the complaint in an expeditious manner.
The Tribunal warns against taking a ‘blanket approach’ to the property syndication cases, requiring the Complaint process to be fair to the ‘complainant’ and to the ‘defendant’
The Ombud determined that the financial advisor acted negligently and did not provide proper financial advice. The Ombud’s position on negligence included that “any investment in a property syndication is high risk and any advisor who advises a client to invest in such a scheme is negligent.” However, the tribunal stated that the Ombud approached the matter with a ‘fixed state of mind’ instead of dealing with the matter on ‘its own merits’.
In order for legal causation to exist, there must be a ‘causal relationship between the financial advisor’s conduct and the loss suffered by the first respondent’. The Ombud had to determine if the financial advisor’s negligent advice legally caused the first respondent to suffer financial loss and heavily relied on the case of City Capital SA Property Holdings Limited v Chavonnes Badenhorst St Clair Cooper NO and Others , where it was held that the mismanagement of the company existed before the income or dividends ceased to be paid to the investors. However, the tribunal found that the case should have mentioned that the mismanagement of the company also existed at the time that investments were being collected from the public, which alludes to the fact that the first respondent should have also known of the mismanagement of the company. 
The tribunal followed the high court decision of Symons NO v Rob Roy Investments CC t/a Assetsur , where it was held that the collapse of the property syndication schemes was caused by the intervention of the SA Reserve Bank and not by negligent advice. The tribunal follows the above decision to indicate that the loss suffered was not caused by the financial advisor providing negligent advice but external circumstances outside the financial advisor’s control. Further, the tribunal stated that fairness has two sides: being fair to the complainant and to the defendant. Therefore, the decision of the Ombud was set aside.
On receiving a complaint from the FAIS Ombud
The Ombud can only hear a matter that is within its monetary jurisdictional limit of R800 000, unless the parties to the Complaint agree to exceed this limit. Once an FSP receives a complaint from the Ombud the FSP must ensure it acknowledges receipt of the complaint, the details of the complainant and the case. The FSP is advised to record the reasons for the Complaint and the amount thereof. An FSP is entitled to provide their version of the events by submitting adequate evidence and reasons to the Ombud on each of the allegations and points of dispute. Once the Ombud receives this information, it will assess the information and request further information from any of the parties. Or, if sufficient information has been provided, engage with and provide the FSP with a recommendation. If the FSP is not in agreement with the recommendation it may engage further with the Ombud. The Ombud’s determination can award a monetary amount or issue a declaratory order. The Ombud may also dismiss a complaint, if the FSP was found to have complied with all requirements, if the complaint has no reasonable grounds of success or is being pursued in a dishonest, vexatious, or unreasonable manner. 
FSPs have a right to apply for reconsideration
The above matter illustrates that an FSP also has recourse options in instances where it feels that fair treatment and fairness has not prevailed. The FSP has a right to apply to the tribunal for a reconsideration of a decision that has been made against them by the Ombud in this instance. In the above matter, the financial advisor exercised his right to appeal successfully. An FSP who wishes to apply for reconsideration of a decision of the Ombud must lodge an application (Form C), with the tribunal secretariat and all other relevant parties. The FSP must ensure the application includes: 
a) A copy of the original application submitted to the Ombud,
b) The decision letter,
c) The full particulars of the grounds on which the application is based.
In order to ensure a clear and efficient application, the FSP must ensure that only relevant documents are submitted, and they are properly marked, not duplicated, and collated in a single file.
It is refreshing that the standard which the tribunal has applied and recommended is not a ‘one size fits all approach’, requiring that each matter should be decided upon ‘its own merits’. However, it is important to acknowledge the extended period of time that had lapsed in dealing with this specific complaint, and that this may have also impacted the outcome of this decision. The vision and mission of the Ombud’s Office is to ensure that matters are heard fairly and expeditiously, not only for the integrity of the financial services industry, but also for the protection of all participants. An FSP who wishes to exercise the right to appeal a decision of the FAIS Ombud must follow the proper process for an application for reconsider, and if successful, the decision may be referred back to the Ombud for reconsideration or be set aside.