Tag Archives: Hanna Barry

Investment red flags

16 Apr

Author: Hanna Barry

Publications: MoneyWeb

Date Published: 14 April 2015

JOHANNESBURG – Unregulated investment schemes may be a dime a dozen in South Africa, but they’re pretty easy to spot so there’s really no excuse to get caught out.

Be wary when promised abnormally high and consistently positive returns that are guaranteed even when the market is down, cautions Marc Alves, senior case manager at the Financial Advisory and Intermediary Services (FAIS) Ombud.

“It’s very difficult to get a 10% return in the market through an established financial services provider, so if someone is offering you 2% a month or 30% per annum, be very cautious,” he says.

The JSE’s All Share Index (Alsi) returned 7.6% last year. The Top 40 Index, which holds South Africa’s largest blue chip companies, returned just 6%. Listed Property and the Financial 15 (which includes the largest banks and insurers) fared significantly better, returning around 19% and 23% respectively.

But even at the upper end, these numbers are significantly lower than the 300% annual returns promised by Zantech Trading or the 2%-a-day returns promised by Chris Walker’s Defencex. Both schemes were found guilty of contravening the Banks Act and ordered to repay investors.

“Empower yourself with sound financial planning and don’t make decisions based on pressure and emotions,” advises Alves, noting that those exploited are often people who have not provided sufficiently for their retirement or other financial needs.

“Ask about the risks and how easy it is to get your money out. A lot of these schemes are willing buyer, willing seller. It’s difficult to get your money out if there is no willing buyer,” he points out.

Make sure you understand how the investment works (could you explain it to someone else?) and where your money is going, Alves adds.

Know the laws

If a company is providing a financial service it must be registered under the FAIS Act and have a financial services provider (FSP) licence number, issued by the Financial Services Board (FSB). An unregistered FSP would be in contravention of the Act. You can check whether a company has an FSP licence on the FSB’s website by running a search on the company’s name (‘Search for FSP name’).

Herman Pretorius’s Relative Value Arbitrage Fund (RVAF) was not a registered fund with the FSB. Yet it is believed to have amassed R1.8 billion from 3 000 investors.

Fortunately, because it fell within the definition of a financial product, the FAIS Ombud was still able to pronounce on it despite it not being registered and has made numerous awards in favour of consumers. Last year alone, one financial advisor was ordered to repay more than R10.7 million to around 20 consumers who he had advised to invest in the RVAF.

However, a number of schemes set themselves up so as to fall outside the definition of a financial product. This leaves consumers with very little recourse since financial regulators can only enforce the laws they have jurisdiction over and only where these laws have in fact been broken. If a company is not registered with either the South African Reserve Bank (Sarb), FSB or National Credit Regulator (NCR), ask why.

The role of financial advisors

Financial advisors approached by clients for advice on these products must do the appropriate due diligence on the product, Alves says. “We’re not saying there’s not a place for alternative investments, but definitely advisors should do their homework and make sure that the products are sound and meet all the criteria,” says Alves.

“If you don’t understand the product yourself, if you haven’t done any due diligence and can’t answer the questions, don’t advise on it and certainly don’t earn fees,” cautions Gavin Came, a financial planner with Sasfin Wealth.

“Product providers have over time caused more damage than intermediaries, although advisors have borne the vast majority of the regulator’s wrath,” he maintains. “When investments don’t pan out, the intermediary carries the can for an ill-designed product at best and a ponzi scheme at worst,” Came says.


How to lay a complaint with the FAIS Ombud

27 Jan

Author: Hanna Barry

Publications: MoneyWeb

Date Published: 26 January 2015

JOHANNESBURG – To help you navigate the world of financial services in 2015, Moneyweb has put together a guide to understanding how the complaints process of the Financial Advisory and Intermediary Services (FAIS) Ombud works. Since the FAIS Ombud handles complaints from members of the public against financial advisors and product providers it could come in handy.

1. Try make amends

Before submitting a complaint to the FAIS Ombud, you must try to resolve it with the responding party (financial advisor or product provider) within a six-week time frame. Once you’ve received the final word from the respondent and are still not satisfied, you then have six months to approach the Ombud with your complaint.

2. Fill out a form

Your complaint should be outlined in a six-page form under the How to complain tab on the Ombud’s website. You can phone the Ombud on 012 470 9080 if you need help completing the form, but it’s fairly self-explanatory. The form requires a detailed explanation of your complaint, including background, product details, as well as date-stamped phone calls and emails exchanged with the person or company you are complaining against. Supporting documentation, such as proof of your investment and any relevant correspondence you may have, should be attached to your complaint. There’s even a section that asks you to describe how you would expect your complaint to be resolved.

3. Know your limits

The Ombud has a jurisdictional limit of R800 000 per complaint and complainants must agree to forego any amount in excess of R800 000 in order for the Ombud to consider their complaint. However, it’s important to understand that one complaint can comprise a number of causes of action, which for the purposes of this rule are considered as separate complaints.

“Where a person makes an investment of R790 000 in July 2013 as a result of advice offered by their financial advisor and then in May 2014 a further amount of R1 million is invested, following the advice of the same financial advisor, the two transactions make two separate causes of action,” explains FAIS Ombud, Noluntu Bam.

“In other words, even though the person will send us one complaint detailing all the investments they made, the two transactions remain two separate causes to institute a complaint,” Bam tells Moneyweb.

If this complaint were to succeed, the full R790 000 would be awarded in respect of the first cause of action, while the second cause of action would be limited to R800 000. The complainant would ultimately walk away with R1.59 million.

Importantly, the Ombud is precluded from looking at complaints pending before a court of law. The office’s eventual determination has the effect of a civil judgment of the court.

4. Wait for an outcome

Once the FAIS Ombud has received your complaint, the office “may follow and implement any procedure which the FAIS Ombud deems appropriate, and may allow any party the right to legal representation,” an information leaflet on the Ombud’s website broadly explains.

The respondent is naturally given a chance to respond and the Ombud must first attempt to mediate a settlement between the parties. If the parties refuse to accept the Ombud’s recommendations, the Ombud will make a final determination. This could include either the dismissal of the complaint or the upholding of the complaint wholly or partially by compensating the complainant for financial harm suffered.

R10m for one advisor

Of the 9 400 odd new complaints received in the 2013/14 financial year, the Ombud settled 7 587 within the same year (including 49 determinations), returning around R30.6 million to consumers.

Of the 49 determinations made, 17 were made against Impact Financial Consultants CC and Michal Johannes Calitz in respect of Herman Pretorius’s Relative Value Arbitrage Fund (RVAF).

Excluding the annual interest accumulating from the date of determination to the date of final payment (varying between 9% and 15.5%), the total awards made to consumers in respect of this one advisor and product came to more than R10.7 million.