Tag Archives: Certified Financial Planner

‘Hedge fund’ advice slammed

22 Jun

Author: Angelique Arde

Publications: iOL

Date Published: 22 June 2014

The Ombud for Financial Services Providers has handed down a scathing determination against a financial planner who placed R500 000 of his client’s savings in the Relative Value Arbitrage Fund (RVAF), which was a scam posing as a hedge fund.

The RVAF collapsed after the architect of the scam, Herman Pretorius, reportedly shot his former business partner and then himself in July 2012.

The determination handed down by ombud Noluntu Bam this week reveals that adviser Michal Calitz of Impact Financial Consultants in Bellville, Western Cape, earned R8.4 million in so-called share profits from the RVAF, “yet on the objective evidence he could not have conducted even the most basic due diligence [tests] on the RVAF”.

Calitz placed his client’s funds in a scheme which did not have a financial services provider number, nominee account or even audited financials, Bam’s determination states.

“Schemes such as the RVAF cannot exist without professionals such as Calitz turning a blind eye to legislative requirements,” Bam says.

Calitz holds a post-graduate diploma in financial planning and is a member of the Financial Planning Institute (FPI). This entitles him to call himself a Certified Financial Planner (CFP). He was certified to a standard above that of the average financial adviser and “must be held to that standard”, Bam says.

The ruling follows a complaint by a dentist, Dr Craig Inch, who became Calitz’s client because a friend had recommended him.

According to the ruling, Inch’s friend had told him about a hedge fund that had been performing well, and the dentist asked Calitz about it or others of a similar ilk. Calitz said he did know about it, and mentioned the RVAF.

Not knowing much about hedge funds other than that they can be risky, Inch asked Calitz to explain the fund. Calitz replied that the fund manager was a gentleman he knew very well and that the fund used a technique involving long-short strategies.

When Inch asked about the risks of losing capital due to poor decision-making by the fund manager, Calitz said that although this was possible, the fund had done consistently “very, very well” and provided a return of 20 percent a year without much deviation.

Calitz explained that hedge funds are not regulated in the way that unit trust funds are, but that this fund has “all the correct paperwork”.

Bam says the RVAF had no paperwork by way of registration or licence whatsoever, and in that regard was conducting business illegally.

With all his savings (R600 000) in a money market fund, Inch was not willing to invest his capital with a high risk of loss. But Calitz assured him that the fund was not influenced by market fluctuations. Furthermore, not only had many of his clients invested in the RVAF, but so too had he. Based on this assurance, Inch deposited R500 000 into the RVAF’s bank account on March 30, 2010, the ruling says.

On July 26, 2012, Inch instructed Calitz that he wanted to withdraw R600 000. The following morning, he heard of the death of Pretorius, “the fund manager and trustee of the RVAF”.

The RVAF is in liquidation, and the trustees have indicated that some, if not all, investor funds have been lost. Bam’s ruling says that in a letter dated November 2012, Calitz wrote: “It is presumed that Dr Inch’s funds are lost, although no definite finding has been made by the liquidators.”

Inch told the ombud he trusted Calitz because he is a CFP and his company is registered with the Financial Services Board (FSB). This led him to believe that the product he was investing in was legal and registered, that Calitz had done the necessary due diligence, that the fund manager was licensed with the FSB, that there were valid financial statements and that the fund was audited.

“This is not the case at all. Had I known this, I would never have invested a cent in this fund,” Inch told the ombud. Calitz acted unethically by investing his money in this “hedge fund”, he says.

In response to questions from Bam’s office, Calitz did not provide evidence of having done a financial needs analysis, justifying investing Inch’s savings in a hedge fund, “which is high risk”, or a record of advice, to explain what other products were considered.

Bam says while Calitz supposedly had the qualifications and experience, “he either failed to properly understand what he was dealing with, or, more worryingly, turned a blind eye in favour of lucrative commission, which he received from the RVAF” .

Bam says Calitz ignored the very legislation designed to protect his client, which led to his client’s loss, and ordered him and his company pay Inch R500 000.

Bam’s office has also referred the determination to the FPI.

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