OMBUD Ruling

Source: Masthead

http://www.masthead.co.za/advisors/Pages/OMBUDRulingGertCorneulis.aspx

OMBUD Ruling: Gert Cornelius Johannes van Vuuren and Susara Jacoba van Vuuren (complainants) v 

Kampstone Financial Services CC (respondent)

 

The Complainants’ version:

The 2 complainants are aged 69 and 66 respectively, approached the respondent for investment advice.  According to the complainants, they requested that their funds be invested for a period of two years with unrestricted access to capital in case of emergencies. The representative of the respondent misled them into purchasing two 15 year Investment Plans with monthly premiums of R2000 and R5000, respectively. The consequence of the representative’s failure to adhere to their request is that they had to pay penalties on all withdrawals, reducing the premiums and premature cancellation due to affordability.

The Respondent’s version:

The respondent accompanied the representative to the complainants’ home and met with only one of the complainants that indicated she makes all the investment decisions.

According to the respondent they proposed various investment options and the complainant opted for the Investment Plans.  The representative recorded the advice.  The respondent asserts that she was not involved in all the discussions and only subsequently learnt that the investment period was increased from 10 – 15 years.  The respondent further commented on the increase in term and premium of the product and told the representative “that she could be sure this would be a lapse”.

The OMBUD’s ruling:

• The complainants are not sophisticated investors.
• The Investment plans’ terms were beyond their actuarial life expectancy and thus unsuitable.
• Commission received by the representative correlates to the term of the investment plans.
• The Record of Advice did not reflect the products allegedly considered and no explanation as to why the recommended products were likely to satisfy complainants’ needs and objectives.
• The disclosure is silent on the investment term and extent of withdrawal penalties and penalties on reduction of premiums.
• Failure to provide proof that commission was disclosed and that an analysis had been carried out for the purposes of furnishing advice.
• The respondent admitted that the representative failed to follow office protocol by not obtaining the respondent’s approval when making investments.
• The ease with which the representative was able to bypass office protocol suggests that the respondent did not have sufficient control measures in place to eliminate as far as reasonably possible, the risk that clients will suffer financial loss through the professional misconduct of the representative. The lack of record-keeping, non-disclosure and unsuitable advice are indicative of the respondent’s failure to maintain operational ability to fulfil the responsibilities imposed by the Act, the OMBUD held the respondent liable for the losses suffered by the complainants as required by section 13 (1)(b)(i)(bb) that states ‘…the provider accepts responsibility for those activities of the representative performed within the course and scope of, or in the course of implementing, any such contract or mandate..’

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