Investors can lay complaints against their advisers with Noluntu Bam, the ombud for financial services providers (Fais Ombud).

If the Ombud finds that bad advice was rendered, she has the power to order an adviser to refund a client as much as R800 000.

An adverse finding has the same strength in law as an order of the High Court.

Complaining to the Fais Ombud is free.

Thus, it is an effective solution for victims of bad advice.

The alternative, a civil case in the courts, could cost hundreds of thousands of rand and take years before a ruling is made.

Over the past few years, the Ombud has found against many financial advisers who recommended dubious investments to their clients. Examples include  Sharemax, Leaderguard and Garek. 

A key feature of many of these investments is that they paid high commissions to the advisers who sold them. Herman Pretorius’s investments were no different.

Pretorius’s Relative Value Arbitrage Fund was placed under provisional sequestration last week. It owes about R1.8bn to 3 000 investors.

Pretorius’s investors include many once-wealthy people from Western Cape towns such as Moorreesburg, Porterville, Hopefield, Piketberg, Robertson, Malmesbury, Durbanville and Riversdale. CitiBusiness has also been contacted by investors in the Vaal triangle.

Those who invested more than R800 000 may think twice before laying a complaint with the Ombud. By law, if a complaint involves an amount more than R800 000, the Ombud will only investigate if: a) the complainant agrees to abandon the amount in excess of R800 000, or b) the person against whom the complaint is laid agrees to let the Ombud adjudicate on the matter.

There is no special legal or financial knowledge necessary to lay a complaint.

The Fais Ombud can order a refund even if the financial adviser is not FSB-registered. She did this in a determination against Garek broker Deolene Catsicadellis.

Financial advisers who recommended Pretorius’s Relative Value Arbitrage Fund to investors will find it hard to justify their advice to the Fais Ombud.

Pretorius was not FSB-licensed,his “fund” had no third-party verification of returns, and it did not prepare financial statements and was not audited.

Laying a complaint with the Ombud is a logical step for Pretorius’s investors. But it is by no means a guarantee of getting any money back. Many of the Ombud’s rulings are taken on appeal by financial advisers. Some refuse to comply, and others simply can’t afford it.

An investor whose funds have been depleted by bad advice may not be able to afford the legal cost of forcing an adviser to comply with a Fais Ombud determination.

The Ombud’s office informs CitiBusiness that it does not maintain any records of how many brokers have actually complied with adverse determinations against them.

It also does not necessarily help if a financial adviser carries personal indemnity insurance. By law, financial advisers must carry insurance to the value of R1m. Such a sum of money will not go far for an adviser who has sold investments worth tens of millions.

And when insurance does pay out, the money may not go to the victims of a broker’s bad advice.

This happened in the case of financial adviser Deeb Risk, who has been ordered by the Ombud to repay clients who invested millions in Sharemax on his advice.

Risk carried insurance with Santam subsidiary Stalker Hutchison and Admiral (SHA).

His insurance paid out, but the money was used to sue the Ombud.

The case was heard before Judge Selby Baqwa on Monday and Tuesday last week.
Judgment has been reserved.

– julius@moneyweb.co.za