Report underlines ombud’s valuable role
his week, the Financial Advisory and Intermediary Services (FAIS) Ombud, Noluntu Bam, (as she is known in the industry) released her annual report for 2012/13.
It underscores the good work that she and her office are doing in curbing the excesses (to be polite) of the broader financial services industry.
It is worth quoting what finance minister Pravin Gordhan has to say in the foreword to the report:
“Access to financial services plays a vital role in the ongoing transformation and development of our society, and our desire to improve the lives of our people. The ability to increase or preserve one’s wealth through investment, for example, can go a long way in facilitating a better life for all South Africans as well as increasing the country’s pool of savings.
“Millions of South Africans buy investment products each year, and the majority of these transactions are concluded via intermediaries. While most transactions are concluded without complications, there are times when things go wrong. And this is where the intervention of the FAIS Ombud becomes critical.”
He goes on to mention the complex structures that are used to confuse investors and how the ombud is now inundated with complaints about property syndications.
Gordhan ends off by saying that integrity within the financial services industry is integral to ensuring investor confidence and a more inclusive savings culture, and he applauds the role that Bam is playing in achieving this by calling miscreants to order.
What I find amazing is that this office has now been operational for 10 years, and yet there are still so many who believe that they can get away with bad behaviour – from selling scam products to selling simply bad products, particularly those of life assurance companies, who should know far better.
Bam herself says that the 10th anniversary is not worth celebrating “when consumers, especially those who no longer have access to their capital, continue to lose money, notwithstanding all the protection that the legislature has put in place”.
TAnd to make matters worse, too many challenge the authority of the various statutory financial sector complaint resolution structures to intervene, not only in the interests of waylaid individuals but also in the interest of a muchneeded good name for the industry.
Bam points out in her report that without her office, many people would simply not be able to get justice, because they cannot afford to go to the High Court.
She says this is why she has opposed every move by people and companies who have attempted to force her to refer matters to the High Court.
One financial adviser who had been flogging property syndication investments to the elderly, Deeb Risk, went so far as to take the issue, very unsuccessfully, to the High Court himself.
But she says that despite her victory against Risk, there have been many cases where respondents have, without good cause, tried to frustrate the complaints procedure by arguing that the cases must be referred to the High Court rather than being determined by her office, which, incidentally, has the same standing as the High Court.
The reason she will continue to reject these arguments, she says, is that they are “mischievous and aimed at denying access to justice”.
Bam says that other respondents argue that she cannot hear the complaints because the products they sold are not subject to her authority.
She could have added another problem relating to property syndications: the attempted intimidation of complainants by Dominique Haese, the former managing and financial director of Sharemax, who now heads two companies, Nova Property Group and Frontier Asset Management & Investments, which took over the problematic The following statistics were recorded in the financial advice ombud’s annual report for 2012/13:
◆ R51 055 518 was recovered for investors for the 12 months ended March 2013 – almost 16 percent up on the previous year.
◆ Of the 9 949 complaints received, 7 898 were resolved in the period.
◆ Including complaints carried over, 9 033 complaints were resolved during the period.
◆ Of the 9 949 new complaints, 4 288 qualified for attention from the ombud. The report states that 2 577 complaints were dismissed, 4 366 were referred to financial services providers or to other adjudicators, 955 were settled, and 2 051 were carried over to the current year.
◆ The most complaints came from Gauteng (34.33 percent) , followed by KwaZulu-Natal (13.4 percent).
◆ The largest number of complaints (27.38 percent) are about short- term insurance products, followed by life assurance products (25.25 percent) – see graph, left. Sharemax property portfolio in terms of a restructuring sanctioned by the High Court in January last year.
Haese threatened some of the 34 000 people who invested more than R4.4 billion in the imploded Sharemax property syndication schemes that they could lose any rights if they went ahead with their complaints.
There have already been a number of Bam determinations against Haese and her fellow Sharemax directors, which have now been taken on appeal to the Financial Services Appeal Board.
The problem often with Appeal Board hearings is that the original complainants simply do not have the time, money or expertise to state their case, and the FAIS Ombud has no automatic right to state the full reasons for her determinations or answer new arguments brought by the appellants.
The Appeal Board has, however, acted properly in this case. It has invited Bam to take part and, on top of this, it has appointed an independent legal expert as a “friend” of the Appeal Board to assist in the deliberations.
If the Appeal Board upholds Bam’s determinations, Haese and her fellow directors and thousands of financial advisers who flogged these high-risk investments will find themselves seriously out of pocket. This is particularly so since Nova signalled that half the R4.4 billion invested through Sharemax could evaporate. And one must also include the many other property syndications that have gone belly up.
Another problem Bam says she often faces is that the companies and structures involved in nefarious schemes are simply closed down, frustrating proper investigation.
Bam’s annual report contains many of her more important determinations, which have been published by Personal Finance. It also, for the first time, includes reports about complaints that were settled before a determination was made. In the past, settlements have not been published.
Bam’s now- deceased predecessor, Charles Pillai, used to complain that companies would often settle at the last minute to avoid the bad publicity of a determination going against them. He said that while a settlement was good news for the complainant, the misbehaving company escaped the bad publicity it deserved, and consumers were not educated about a matter that might affect them.
Bam has reported on important settlements but without mentioning the names of the parties that settled. The biggest settlement was for R597 100 (see “Cases where respondents have settled before determination stage”, below).
Although Bam seems despondent about the increasing number of complaints arising from ongoing poor behaviour in the financial services industry, she need not be. The value of her office has been proved time and again – and it is definitely having an impact on those who do not put you first.