An 81 year old pensioner invested R550 000 in the PIC Syndications (PIC) after being guaranteed interest of 12.5% per annum, payable monthly. The complainant gained the money from her late husband’s life insurance, deposited the funds in a bank account and called her financial advisor to ask if she knew of a better investment. The advisor, together with a broker consultant of Picvest, met with the complainant and offered her various options, of which the best return presented to the client was that offered by PIC. They told the client that the interest in this investment was guaranteed at 12.5% and that the investment was in shopping centres which would not go bankrupt. Based on the information provided to her, the client accepted the advice and transferred the money. The client received the guaranteed interest rate for just under two years, then the interest rate was reduced to 6.5%, which effectively was 6% as the remainder was for admin fees. Eventually, the interest rate was reduced to 2%. The complainant called the advisor to get her money of out PIC, but was told that this was not possible. The advisor sent the complainant a complaint form to complete but made it clear that the advisor will not be selling the complainant’s shares and all further queries must be referred to the broker consultant of Picvest.
The complainant made it clear that she only invested in PIC because she was assured by her advisor and the Picvest broker consultant that the income was guaranteed. She therefore lodged a complaint against her advisor, for not pointing out at the time of the advice that this was a high risk investment. A needs analysis was done by the advisor but there is no evidence that she informed the client that this was a high risk investment, especially taking into consideration the client’s age and financial knowledge. The complainant also lodged a complaint against PIC, but the Ombud stated that it will be pointless to investigate a complaint against a company that is in liquidation.
The financial advisor responded to the Ombud that she was not licensed to sell this product and therefore at all times acted as a representative of PIC and under the direct supervision of an employee of PIC. PIC acknowledged this in writing and accepted that they were responsible for her actions. The advisor’s conclusion was therefore that the complaint should be directed at PIC and not at her and her FSP.
What is interesting in this case is that the advisor had her own FSP and it was in her capacity as representative of her own FSP that she had a long standing business relationship with the complainant. However, because she was not licenced to deal with unlisted shares and debentures, nor did she have any experience in these types of products, she was appointed as a representative under supervision on the licence of PIC. Her defence in this case was that PIC was the FSP responsible for her activities as a representative under supervision on their licence.
However, the Ombud found that although PIC undertook to be responsible for the advisor’s conduct, as required in terms of section 13 of the Act, it does not make PIC solely responsible. The advisor was responsible for the advice given to her client, notwithstanding that she acted as a representative of PIC. The advisor had to comply with the General Code of Conduct and the mere appointment as representative of PIC could never exonerate her from this requirement. The Ombud also commented that the advisor was willing to accept what the Ombud describes as “lucrative commission” paid by PIC.
This determination highlights the duties of Representatives, whether acting under supervision or not. Representatives are required to adhere to the General Code of Conduct and must also assume responsibility for the financial services provided to clients. Even though an FSP is responsible for the activities of its representatives, this responsibility is not carried alone. Representatives must, therefore, make sure that they know what is expected of them so they can fulfil their duty to conduct themselves with due care, skill and diligence and ensure that their customers are treated fairly.
The Ombud concluded in this case that the advice provided by the advisor and her FSP was the direct cause of the complainant’s loss and therefore ordered them to repay the capital amount of R550 000 together with interest.