Surprising twist in ombud’s decision against financial adviser

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The decision in which the Office of the Ombud for Financial Services Providers (Fais Ombud) referred a financial adviser to the industry regulator – for “unreasonable conduct” in advising an 80-year-old woman allegedly Alzheimer’s dementia sufferer to make a high-risk investment in a failed property syndication program – took a surprising turn.

The Ombud agreed to reconsider the adverse decision against Jan Labuschagne Makelaars CC and Jan Harm Labuschagne, which resulted in the Financial Services Tribunal issuing an order pursuant to this agreement.

It follows that Labuschagne filed a request for reconsideration of the decision, in which he questioned the accuracy of some of the claims made in the complaint – including the date the woman was diagnosed with dementia. Alzheimer’s disease and the authenticity of the medical file. certificate provided in support of this diagnosis.

Labuschagne also claimed that the ombud ignored his legal and common law obligations by effectively failing to investigate the complaint, which rendered the decision unjust, illegal and contrary to his constitutional rights.

Read: Fais Ombud recoups almost R50m for consumers in 2020/2021

Fais Ombud Advocate Nonku Tshombe issued the decision on October 13, 2020, in response to a complaint filed by Linda-Marie Mienie on behalf of her mother, Maria Cecilia Terblanche.

Mienie was named executor of Terblanche’s estate after her mother’s death.

Terblanche was 80 when Labuschagne advised him to invest 700,000 rand in Realcor on April 16, 2010, when, according to Mienie, his mother was already in an advanced state of Alzheimer’s dementia.

Shortly after making the investment, Realcor went into liquidation and Terblanche’s funds were lost, as none of his capital was ever repaid to him.

Mienie as a curator and after learning of this investment, challenged Labuschagne’s conduct in advising her mother to make a high-risk investment in Realcor.

She was unable to resolve the matter with Labuschagne, which led her to file a complaint with the ombud on her mother’s behalf.

Complaint claims

The complaint, among other things, said that:

  • Two medical reports were submitted to confirm Terblanche’s condition, one by his family doctor, Dr. SF van den Heever, on July 1, 2010.

  • Terblanche saw specialist neurologist Dr M van Niekerk in September 2010, whose diagnosis was that she had Alzheimer’s dementia, and filed an affidavit in support of a request to appoint a curator for Terblanche.

  • Around the time the Realcor investment was made, Terblanche had deteriorated to the point where she was unable to hold a normal conversation with her daughters and could no longer recognize her own daughters’ voices on the telephone.

  • Absa called Ms Mostert, another of Terblanche’s daughters, to inform her that R700,000 had been transferred from the family trust account where her mother’s funds were held. This despite a requirement that all three trustees – Terblanche and his three daughters – must sign before funds can be transferred, but not all trustees have signed.

Advisor response

In response to the complaint, Labuschagne stated, among other things:

  • The complaint had prescribed.

  • At the time of the transaction, Terblanche was “Compus Mentis” [compos mentis] and he had no knowledge of her condition, she showed no indication that she suffered from dementia, she was in full control of her financial affairs and was physically mobile.

  • Terblanche signed all the documents discussed and explained by Labuschagne, went alone and alone to Absa where she withdrew the 700,000 rand and deposited it in the Realcor trust account, then asked Absa to fax the slip deposit at the Labuschagne office.

  • Terblanche approached him to request an investment in Realcor and he made full and candid disclosure of the investment to Terblanche, who signed an information document acknowledging that she understood the investment.

Tshombe, in her resolve, said the statute of limitations could not run against Terblanche as she lacked the mental capacity to administer her own affairs.

Additionally, Tshombe said:

  • Labuschagne’s version is unlikely, adding that an 80-year-old with Alzheimer’s doesn’t call her broker to let her know she plans to diversify her portfolio.

  • This version is absurd because Labuschagne knew that Terblanche had invested in Sharemax and [the Public Investment Corporation] PIC on his advice and also knew at the time that these syndications had collapsed or were being investigated by the SA Reserve Bank.

  • Putting more money from Terblanche into another real estate syndication does not diversify an investment portfolio.

Tshombe said Labuschagne’s conduct was the cause of Terblance losing his capital and ordered Labuschagne to pay Terblanche’s estate R700,000.

She described Labuschagne’s conduct as “unconscionable”, as having brought the financial services industry into disrepute and added that he was not fit to be a licensed financial services provider.

Tshombe referred his decision to the Financial Advisory and Intermediary Services (Fais) and Financial Sector Conduct Authority (FSCA) Licensing Services for further consideration.

“Hypotheses, speculations”

In a 34-page request to the Financial Services Tribunal for reconsideration of the decision, Labuschagne said the ombud slavishly accepted the plaintiffs’ version, which was clearly based on “emotional and ill-informed assumptions and speculation, and obviously [is] contradictory and false in many respects”.

Labuschagne, among others, added:

  • That the ombud blindly accepted Mienie’s advice that Terblanche suffered from Alzheimer’s dementia at the time of the investment, but only provided a letter signed by GP Dr SF van den Heever.

  • That Dr. SF van den Heever’s letter is presented as dated 2011 when the letter is actually dated February 16, 2013, nearly three years after the investment.

  • That the appendix appended by Mienie appears to have been altered to reflect the date of August 16, 2011, which was obviously done to bring the diagnosis closer to the investment date in an attempt to create a false perception that total insanity must have been present on the date of investment.

  • That no report from neurologist Dr M van Niekerk was provided.

  • This Terblanche file, which he believed to have been destroyed because a period of five years had passed, had been located in an off-site warehouse.

  • That the Ombud erred in finding that he helped Terblanche invest in Highveld Syndications and Sharemax in addition to Realcor.

  • That he (Labuschagne) questioned Mienie’s honesty, stating that the ombud’s version of the “trust check” turned out to be false and that such a check does not exist.

  • That the version presented by Mienie regarding the alleged phone call from Absa is manifestly false in that the check presented is clearly Terblanche’s personal check.

  • And denied that his advice was negligent and wrongful, that Terblanche suffered any loss and that the loss was caused as a result of allegedly negligent advice.

The brief reasons given by Fais Ombud to the Financial Services Tribunal for returning, by mutual agreement of the parties, its decision to its office for reconsideration, included the discovery of Terblanche’s file which was believed to be lost; his office’s view that the documents in this file are relevant and should have been considered in the investigation of the complaint; and Labuschagne involving Terblanche’s mental ability to contract, which requires further investigation.

Investigation?

The ombud’s office confirmed to Moneyweb this month that the decision was sent to the FSCA on October 13, 2020.

“Although the determination was sent, our liaison was unable to find any record indicating that such an investigation was undertaken,” he said.

“The determination has now been re-sent to the FSCA with a specific request for further investigations to be undertaken, as set out in the determination.

“The FSCA will conduct its own investigation to determine whether Jan Harm Labuschagne Makelaars CC and Jan Harm Labuschagne have breached applicable provisions of the Code and the Fais Act,” it said.

The ombud said if the violations are confirmed, the FSCA could impose an administrative penalty or even revoke the financial services provider’s license and debar the financial adviser.

The Ombud was also asked whether Absa Bank failed in its duty of care to customers when it released the R700,000 for the investment in Realcor from a family trust account without the signatures of all required signatories.

Read:

“The Office of the Fais Ombud investigates complaints based on the jurisdiction we have as an office, and for this particular complaint, we were only required to consider advice due to the nature of the complaint made. by the plaintiff,” he said.

Absa’s response

Absa said he is not a defendant in this Fais Ombud case and, given ongoing litigation and client confidentiality considerations, is limited in the amount of detail he can provide.

She confirmed that she had reviewed the details of the case and was satisfied that the bank acted in good faith and complied with all requirements that governed the handling and processing of cheques.

“Furthermore, it is important to point out that a curator was not appointed for Ms. Terblanche until three years after the transaction was completed,” he said.

“As such, there was no requirement to obtain a curator’s signature at this time – Absa could only act in accordance with the mandate agreed with the client.”

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