OMBUD RULES FOR PEN­SIONER

Weekend Argus (Saturday Edition) - - FRONT PAGE -

In a re­cent de­ter­mi­na­tion, the Ombud for Fi­nan­cial Ser­vices Providers, Nol­untu Bam, or­dered Pioneer Wealth Man­agers, a fi­nan­cial ad­vice prac­tice in Rose­bank, Johannesburg, and a for­mer rep­re­sen­ta­tive, Mark Col­ley, to re­pay an in­vestor R800 000 of the money he lost in two un­reg­u­lated off­shore col­lec­tive in­vest­ment schemes.

The in­vestor, Mr L, in­vested over R2 mil­lion, but R800 000 is the max­i­mum com­pen­sa­tion the ombud can or­der.

Mr L in­vested in Bran­deaux, a prop­erty group domi­ciled in the Bri­tish Vir­gin Is­lands, which in­vested in stu­dent ac­com­mo­da­tion and res­i­den­tial rental prop­er­ties in the United King­dom, and Glan­more Prop­erty Fund, whose ad­min­is­tra­tors, North­ern Trust, were domi­ciled in Guernsey, and which in­vested in com­mer­cial prop­er­ties in the UK. Two to three years ago, both schemes got into fi­nan­cial trou­ble and were un­able to pay in­vestors who wanted to re­deem their in­vest­ments. The schemes col­lapsed. Many in­vestors are still wait­ing for at least some of their money to be re­turned to them.

In July 2007, at the age of 58 and with­out a job, Mr L in­vested his en­tire life sav­ings, which, he hoped, would be suf­fi­cient to sus­tain him and his wife when she re­tired in 2011. Ac­cord­ing to Bam’s de­ter­mi­na­tion, he wanted to be in­vested con­ser­va­tively.

On the ad­vice of Col­ley, Mr L took out a five-year en­dow­ment pol­icy with the UK-based as­surer Scot­tish Life (later Royal Lon­don) through African Har­vest Life As­sur­ance Com­pany (later Syg­nia Life), which had an agree­ment with Scot­tish Life to sell its prod­ucts in South Africa. The two un­reg­u­lated prop­erty funds were the un­der­ly­ing in­vest­ments in the en­dow­ment pol­icy.

In 2012, Mr L be­came con­cerned about his in­vest­ment, and, when he lodged his com­plaint with the ombud a year later, the value was less than half of the ini­tial cap­i­tal. A state­ment from Royal Lon­don in Fe­bru­ary 2015 in­formed Mr L that he had lost 84 per­cent of his in­vest­ment.

In its re­sponse to the com­plaint, Pioneer Wealth Man­agers said it iden­ti­fied Mr L as a con­ser­va­tive, bor­der­line mod­er­ate-risk in­vestor. The off­shore in­vest­ment had been mar­keted as con­ser­va­tive-to­mod­er­ate risk. Pioneer said it had com­plied with the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices Act’s reg­u­la­tions and code of con­duct by do­ing a risk pro­file on Mr L, keep­ing a record of ad­vice and dis­clos­ing costs. It said it could not be held re­spon­si­ble for the in­vest­ment’s poor per­for­mance, the re­sult of an eco­nomic down­turn and drop in prop­erty val­ues in the UK.

In her de­ter­mi­na­tion, Bam found that Pioneer and Col­ley should not have taken the mar­ket­ing ma­te­rial at face value. She says: “It is abun­dantly clear from [Col­ley’s] ver­sion that he had not car­ried out any work to fa­mil­iarise him­self with the risk in­volved in the two funds, Bran­deaux and Glan­more. To even sug­gest that the risk in­volved in the two un­reg­u­lated schemes was con­ser­va­tive shows he had no un­der­stand­ing of what he was do­ing, yet he ad­vised [Mr L] that the funds were in line with his risk pro­file. Un­reg­u­lated col­lec­tive in­vest­ment schemes the world over are known as high-risk in­vest­ments, not suit­able for con­ser­va­tive clients.”

Bam ac­cepted that Col­ley could not have fore­seen that the funds would fail.

“How­ever, it was suf­fi­cient that [Col­ley] had not pe­rused even pub­licly avail­able in­for­ma­tion re­gard­ing the un­reg­u­lated na­ture of the funds, the lev­els of gearing (bor­row­ing) and the im­pli­ca­tions for the com­plainant. [Col­ley did not] pro­vide a sin­gle piece of in­for­ma­tion that shows he sat­is­fied him­self on … gov­er­nance ar­range­ments … aimed at pro­tect­ing in­vestors against direc­tor mis­con­duct, bla­tant vi­o­la­tions of the law and, pos­si­bly, fraud. He fur­ther does not pro­vide any ev­i­dence that he ad­vised [Mr L] about the im­pli­ca­tions of lack of reg­u­la­tory over­sight.”

She also found that Pioneer had not dis­closed all the costs, as it said it had, and these costs had con­tin­ued to erode Mr L’s in­vest­ment.

She ruled that Pioneer and Col­ley were jointly and sev­er­ally li­able for Mr L’s loss.

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