You walk into the building of a financial services provider, which could be a bank, a life assurance company or a unit trust provider.
You have chosen the provider because it is a big, well-known company and you believe that the products you will be advised to use by its representatives will be legitimate and in your best interests.
You are also aware that the financial services provider is registered with the regulator, the Financial Services Board. This means that anyone giving you advice on behalf of the bank or life assurance company is a registered representative, who should be selling and giving advice on products authorised by the company.
The representative then makes various recommendations and you sign on the dotted line. You assume because you have been advised by the representative of the bank or life assurance company that everything is above board.
A few years later, you find you have been put into a scam; the bank or life assurance company tells you that its representative was not authorised to sell you the product; and you are left to suffer the loss.
This has happened time and again. In one particularly disgraceful case a few years ago, Old Mutual rejected claims from an elderly pensioner couple who invested R1 million in a scam sold to them by Raymond Wienand, a former Pretoria-based Old Mutual agent. They claimed that Wienand led them to believe the products were endorsed by Old Mutual.
Old Mutual denied any responsibility for the loss, saying Wienand acted outside his employment contract. Old Mutual claimed that the couple “knew or should have known that these investments had nothing to do with Old Mutual”.
During the almost 13 years he was employed by Old Mutual, Wienand managed to convince about 50 people to invest more than R30 million in investment portfolios he was running on the side, and Old Mutual claims its compliance structures failed to detect this.
But this denial of responsibility has become a little more difficult since the Financial Advisory and Intermediary Services (FAIS) Act came into effect in October 2004. The Act sets standards on how you must be treated by financial services providers. With the Act also came an enforcer, namely the FAIS Ombud, currently Noluntu Bam.
And Bam does not agree that the financial services provider can walk away from the fraudulent advice and external deals of a representative.
Unfortunately, the Old Mutual/Wienand problem occurred before the FAIS Act was implemented in October 2004.
In a determination handed down this week, Bam ordered First National Bank (FNB) to repay R340 000 to a former journalist and now a police volunteer worker, Ms FN, who believed she was being properly advised by a FNB representative, Nyaam Mooi, who operated from the Wynberg branch of FNB in Cape Town.
The complaint from Ms FN is one of a number received by Bam about Mooi and FNB. In this case, the complainant, on the advice of Mooi, initially invested R300 000 in 2006 in an RMB unit trust fund.
In 2007, Mooi mentioned an investment in a “solid” textile company called Delwray in which Ms FN, over a period, invested R340 000. Initially, she received about R1 500 a week in interest income, but the payments became erratic.
Her investment was scheduled to be repaid to her in July 2009. The money was not repaid.
Ms FN accepted Mooi’s advice to invest in Delwray on the basis that Mooi was an employee of FNB and the product was sanctioned by FNB.
FNB, in line with similar cases, argued that Ms FN “was fully aware, or should reasonably have been fully aware, that whatever her dealings with Mr Mooi were, it was not in his capacity as a representative of FNB, and that he was on a frolic of his own and that their dealings were outside the course and scope of his employment contract with FNB”.
Bam says the advice was rendered to Ms FN without FNB or Mooi meeting the requirements on disclosure contained in the FAIS Act and its code of conduct.
In her determination, Bam says FNB failed to provide her with any credible evidence that Ms FN knew that the Delwray investment had nothing to do with FNB.
Bam says that the conclusion is “irresistible that the complainant purchased the Delwray product simply because Mooi made her believe she was purchasing a bank product.
“The fact that he went beyond his scope of authority is irrelevant because in rendering the financial service to the complainant he was doing as he was appointed to do – to advise clients.
“On the facts before this office, it is not disputed that the complainant enjoyed a relationship of trust with FNB through its employee, Mooi. There are no facts which support the suggestion the complainant knew that Delwray had nothing to do with the respondent.
“Also, FNB’s conduct in employing Mooi and providing him with infrastructure to carry out his duties created the reasonable inference in the minds of the public that Mooi represented FNB and that the products he sold were authorised by FNB.
“Accordingly, FNB is liable for the conduct of Mooi,” Bam concludes.
A word of warning: the previous FAIS ombud, the late Charles Pillai, did, however, also rule in one case – when it was clear the complainant had known the product was not endorsed by the financial services provider – that no claim could be upheld against the provider.
However, Bam’s determination comes as fair warning to financial services providers that they must police their representatives with a lot more diligence. One of the main reasons for the FAIS Act is to give consumers greater confidence in the advice they receive and the financial products they buy.
Denying responsibility for wayward employees undermines the Act and public confidence.
Bam has done consumers a great service with her determination.