Rul­ing opens door to more prop­erty syn­di­ca­tion com­plaints

A fi­nan­cial ser­vices com­pany and its rep­re­sen­ta­tive were ‘clue­less’ when they ad­vised a pen­sioner to in­vest in a prop­erty syn­di­ca­tion com­pany, the Om­bud for Fi­nan­cial Ser­vices Providers has found. Bruce Cameron re­ports

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

In the first of what is ex­pected to be a se­ries of de­ter­mi­na­tions on prop­erty syn­di­ca­tions that have soured, Nol­untu Bam, the Om­bud for Fi­nan­cial Ser­vices Providers, has or­dered a fi­nan­cial ser­vices provider (FSP) and its rep­re­sen­ta­tive to re­pay R495 000 plus in­ter­est of 15.5 per­cent back­dated to Novem­ber 2008 to a wrongly ad­vised 66-year-old in­vestor.

In her rul­ing, Bam says that nei­ther Cape Town-based Lifesure Fi­nan­cial Ser­vices nor its rep­re­sen­ta­tive, Nigel Segers, un­der­took an ad­e­quate due dili­gence in­ves­ti­ga­tion be­fore in 2005 they ad­vised Bernard Dud­ley to in­vest in Propdotcom, a now failed Blue Pointer prop­erty syn­di­ca­tion scheme, which of­fered an an­nual re­turn of 10.5 per­cent.

And even af­ter the Blue Pointer scheme had col­lapsed, Segers and Lifesure at­tempted to ad­vise Dud­ley to in­vest in an­other prop­erty syn­di­ca­tion scheme, on which they also failed to un­der­take a proper due dili­gence in­ves­ti­ga­tion.

Bam’s de­ter­mi­na­tion comes in the wake of thou­sands of peo­ple, mainly pen­sion­ers, los­ing hun­dreds of mil­lions of rands in flimsy prop­erty syn­di­ca­tions.

Syn­di­ca­tion schemes that have im­ploded re­cently in­clude those pro­moted by Div­i­dend In­vest­ments, King Fi­nan­cial Ser­vices, City Cap­i­tal and BlueZone.

Vul­ner­a­ble pen­sion­ers who need ex­tra in­come have been tar­geted by fi­nan­cial ad­vis­ers, who are paid ex­tra­or­di­nary com­mis­sions of at least six per­cent by the pro­mot­ers of prop­erty syn­di­ca­tion schemes. Bam’s rul­ing will open the way to many more com­plaints to the om­bud about prop­erty syn­di­ca­tions and should slow down the ag­gres­sive sell­ing of prop­erty syn­di­ca­tion schemes to pen­sion­ers.

In the de­ter mi­na­tion, Bam says much has been writ­ten about the risks as­so­ci­ated with prop­erty syn­di­ca­tion, and “the his­tory we have in this re­gard in South Africa does not make for a pleas­ant read.

“Not­with­stand­ing the gi­ant steps taken in leg­isla­tive mea­sures, this area con­tin­ues to be plagued by sto­ries of in­vestors hav­ing been robbed of their in­vest­ment in the most crude and op­por­tunis­tic fashion.”

Bam says that re­quire­ments by the Depart­ment of Trade and In­dus­try for prop­erty syn­di­ca­tion schemes have gone a con­sid­er­able way to ad­dress the much­pub­li­cised gaps in pub­lic prop­erty syn­di­ca­tions, but ex­ploita­tion still takes place.

She says the duty placed on FSPs and their rep­re­sen­ta­tives by the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices Act to act with due skill, care and dili­gence forces FSPs and their rep­re­sen­ta­tives to take re­spon­si­bil­ity for the ad­vice they pro­vide to in­vestors.

The fact that an in­vestor may have ex­tra funds to in­vest does not give an FSP a li­cence to act reck­lessly, she says.

“In ad­di­tion, em­bark­ing on an ex­er­cise of ad­vis­ing a client to in­vest in a prod­uct which the provider has not the slight­est idea of how it works and no ap­pre­ci­a­tion of the risks bor­ders on crim­i­nal con­duct.”

Bam says nei­ther Segers nor Lifesure had a “clue what they were do­ing in rec­om­mend­ing the (syn­di­ca­tion) prod­uct”.

Had Segers “known how to spot the risks in­volved in this type of prod­uct, he would have cau­tioned his client to look else­where for in­vest­ment”, she says.

Segers was also at fault, the om­bud says, be­cause his “er­ro­neous as­sump­tion that Blue Pointer was li­censed, with­out even con­duct­ing a ba­sic check whether it had been li­censed by the Fi­nan­cial Ser­vices Board (FSB), was fa­tal. From here, it would have been rea­son­ably easy for the first re­spon­dent or any rea­son­able provider to fore­see the con­se­quences of con­duct­ing un­li­censed busi­ness, as the per­son or per­sons have no ac­count­abil­ity to any­one. The con­se­quent theft of in­vestors’ funds and the sham­bolic state of the fi­nan­cial records would have been fore­see­able.”

Bam also ac­cused Segers of at­tempt­ing to mislead Dud­ley about an FSB warn­ing that nei­ther Blue Pointer nor its owner, Louis Baart­man, was reg­is­tered with the FSB, as Blue Pointer claimed.

Segers told Dud­ley that the warn­ing re­lated to an out­stand­ing civil case against Baart­man and not the prop­erty syn­di­ca­tion scheme, she says.

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