Adviser berated for ‘product peddling’ Sharemax investments

The ombud for financial services providers this week ruled that a financial adviser whose client lost R100 000 in a Sharemax property syndication investment repay his client her capital.

Jurien Jordaan, of Jurien Jordaan Advisory Services in Wonderboom, Pretoria, was ordered to reimburse his client, Mrs MN, due to his failure to provide appropriate advice and because he was guilty of “product peddling”, according to ombud Noluntu Bam.

In early 2009, Jordaan executed a request by Mrs MN’s father, who had invested in Sharemax, to invest R50 000 on his daughter’s behalf, in a Sharemax investment known as The Villa Retail Park Holdings. In June 2009, Jordaan contacted Mrs MN and persuaded her to make a further investment of R50 000 in The Villa. He had been approached by a client who no longer wanted his shares and was willing to sell them at less than the original price.

Mrs MN says no disclosures regarding the risk associated with such an investment were ever made to her.

In his defence, Jordaan maintained that, at the time, he was a representative of Unlisted Securities South Africa, established by Gerhardus Rossouw Goosen while he was a director of Sharemax. It has since been liquidated.

Regarding the first investment, Jordaan said he never interacted directly with Mrs MN; he dealt strictly with her father, who had invested in Sharemax and was familiar with it. He also said he didn’t advise Mrs MN to invest. “Sharemax is often bought by the investor, not sold by the adviser,” he contended. He conceded that he had sold her the second investment, but said the circumstances should have alerted her to the risk of losing her capital.

In her determination, Bam says being a representative of a financial services provider doesn’t absolve Jordaan of responsibility; both the provider and the representative are duty bound to comply with the provisions of the Financial Advisory and Intermediary Service (FAIS) Act and code of conduct.

Bam says Jordaan also can’t hide behind the veil of “no advice rendered”. In terms of the code, a provider must know their client, assess their needs and circumstances, and keep a record of advice. Jordaan did none of this. Since he failed to establish Mrs MN’s tolerance for risk, he was not able to assess whether or not the investment was suitable for her.

“Simply offloading shares or strictly executing the instructions of the complainant’s father without any application of the mind or attempt to properly undergo the financial planning process beforehand, is in a violation of the Act and code.”

ABOUT SHAREMAX

According to the ombud’s ruling, Sharemax was a public property syndication company, started in 1989, purportedly engaged in renting, operating, and managing commercial properties for shops and offices.

Investors were told they would receive a return of 11.5 percent in the form of income and this was further guaranteed for the first year of the investment term.

In September 2010 a newsletter was issued outlining the difficulties the various property syndications under Sharemax were experiencing in paying out the promised income, mentioning The Villa, but asking investors to be patient because “several new proposals” were promising “excellent rental agreements, which will make the product valuable”, the ruling says.

During October 2012, a request was made to the regulator to lapse the FAIS license issued to Sharemax.

Sharemax and its syndication companies were investigated by the registrar’s office and it was concluded that the funding models were in contravention of the Banks Act.

Directives were issued to Sharemax for the repayment of funds collected from individual investors in September 2010.

In 2012, in a court-sanctioned scheme of arrangement, the schemes were taken over by Nova Property Group Holdings (Nova), and Sharemax investors were issued with debentures or shares in Nova, the ruling says.