The complainants are a retired couple who invested into Bondcare Trust (Trust) upon the financial advice of the respondents.
The first respondent, Alesio, was the sole Key Individual of the second respondent, Introvest CC and rendered financial advice to the couple. Based on the advice the couple were led to believe that their investments were safe and that it was a low risk investment. They were told that Bondcare was regulated by the FSB and complied with all applicable laws. They were promised an attractive interest rate of 18% per annum.
Bondcare besought funds from clients to advance funds as bridging finance to the clients of attorneys. The return on their investment would be from interest paid by the attorneys’ clients. The Registrar of Banks started inspecting the Trust to establish whether it was in fact conducting the business of a bank. As a result of the investigation, Bondcare changed its business model to a Trust Association trading as a CC and the CC now acted as agents of investors for a fee. Alesio was still the sole member of the CC. None of the Bondcare entities were ever licenced. The licence number provided to investors was that of Introvest CC which was an entity controlled by Alesio.
The respondents were given notice to provide the Ombud with their version of events and documents including any record of advice, the needs analysis performed and the evidence determining product suitability for the complainants. No response or evidence was ever received from the respondents.
The respondents were found to have breached the following duties in terms of the FAIS Act and General Code of Conduct:
- They failed to disclose their conflict of interest to the complainants. Alesio was not merely an adviser but also a trustee of Bondcare and the sole member of Bondcare Financing CC.
- They failed to provide suitable advice to clients. There was no evidence that an analysis was done on the complainants’ needs. Respondents also failed to disclose the risk of Bondcare as a product.
- They failed to place the complainants in a position where they could make an informed decision. The complainants were given false information and therefore could not make an informed decision in their best interest.
- The respondents’ failure to comply with the General Code was the sole reason and cause of the loss incurred by the complainants.
- The respondents knew that the promised interest rate was unrealistic and would not realise. Thus the clients’ best interest and financial wellbeing were not considered at any stage.
The respondents were ordered to pay the complainants their initial investment amount totalling R545, 627.00 at an interest rate of 9% per annum.
Even though the complainants had ‘won’ the case, they had still lost their money. The liquidator of Bondcare stated that the estate already had a shortfall of R23 million. Added to this claim was the claim of SARS who must be paid in full before any other concurrent creditors. The Ombud therefore found that the complainants’ capital was unlikely to be recovered as their capital had been stolen.
This case gives a sad view of why people lose their trust in advisors. The greatest lesson to be learnt is that ethical behaviour by a financial advisor is mandatory. Clients should not be provided with false information, the clients’ needs must always be attended to and clients should be treated fairly at all times.
The first outcome of Treating Customers Fairly requires that customers are confident that they are dealing with financial services providers where the fair treatment of customers is central to the culture of the business. It is the responsibility of Key Individuals to ensure that this culture permeates in all aspects of the business. Masthead promotes a compliance culture of ethical behaviour and assists FSP’s to ensure that business processes are aligned with the principles of fair treatment of customers.