Om­bud ques­tions use of risk pro­files

Weekend Argus (Saturday Edition) - - GOODDRINKING -

A pru­dent and dili­gent fi­nan­cial ad­viser will not slav­ishly rely on the re­sults of a risk pro­file ques­tion­naire to de­ter­mine your tol­er­ance of in­vest­ment risk, the fi­nan­cial ad­vice om­bud said in a re­cent de­ter­mi­na­tion.

In a rul­ing against ad­viser Raj Chut­ter­paul, of Raj Chut­ter­paul Bro­kers, Nol­untu Bam, the Om­bud for Fi­nan­cial Ser­vices Providers, said your ad­viser must, by ask­ing rel­e­vant and ap­pro­pri­ate ques­tions, take into ac­count your per­sonal pro­file and your cir­cum­stances.

In the rul­ing handed down ear­lier this year, Bam or­dered Chut­ter­paul to re­pay Vinesh Mo­han­lal of Pi­eter­mar­itzburg the R400 000 he in­vested on Chut­ter­paul’s ad­vice in an un­listed com­pany, which has since been liq­ui­dated, and the trou­bled Share­max prop­erty syn­di­ca­tions.

The re­sults of risk pro­file ques­tion­naires are merely one fac­tor that should be taken into ac­count, and they were never meant to be con­clu­sive proof or ev­i­dence of your ac­tual tol­er­ance of risk, she says.

Wes­sel Oosthuizen, the di­rec­tor of the Cen­tre for Fi­nan­cial Plan­ning Law at the Univer­sity of the Free State, told a re­cent Fi­nan­cial Plan­ning In­sti­tute work­shop that ad­vis­ers should use risk pro­file ques­tion­naires as a guide, rather than as the an­swer, when it comes to as­sess­ing your risk tol­er­ance.

Oosthuizen pointed out that the om­bud said in the Chut­ter­paul rul­ing that the ques­tion­naires do not nec­es­sar­ily pro­duce an ac­cu­rate as­sess­ment of your risk tol­er­ance.

Bam also said that risk pro­file ques­tion­naires some­times ask about the chances you would be will­ing to take. Many peo­ple are un­able to re­late this to in­vest­ing, where los­ing their cap­i­tal can have se­ri­ous con­se­quences.

In an­other case that came be­fore the om­bud this year, John Moore and John­sure In­vest­ments CC were or­dered to re­pay G Black the R100 000 he had in­vested in the Blue Zone prop­erty syn­di­ca­tion.

In this case, Bam found that Moore had asked Black to com­plete a risk pro­file ques­tion­naire, but he had merely gone through the mo­tions of con­duct­ing a risk anal­y­sis.

Oosthuizen says Bam found that the risks of the syn­di­ca­tion that Moore rec­om­mended did not match Black’s in­vest­ment man­date, cir­cum­stances or even the re­sults of the risk pro­file ques­tion­naire, which in­di­cated that Moore was a mod­er­ately con­ser­va­tive in­vestor.

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