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Do we have recourse against Ecsponent-punting brokers?

There are several possible steps: lodge a complaint with the brokers. If the outcome's unsatisfactory, approach the ombud. If the loss exceeds R800 000, consider instituting a civil claim.

My life partner, a self-employed man of 76, was coerced into investing his pension savings of R5.5 million by husband-and-wife brokers known to the family who had sold this product (preferential shares). He received good dividends until a few months ago when they all stopped, with Ecsponent providing a lot of excuses. Now they are saying some money might be paid in December. 

The brokers have taken the stance that my partner agreed to invest with this company. They did not point out the red flags. To my knowledge this is a very bad, high-risk investment to sell to a man of 76, which locked him in for five years.

Is there any action we can take against these brokers? We believe we can claim only R800 000 from the Financial Advisory and Intermediary Services (Fais) ombud. We are afraid we will lose our whole investment. Is there any other route we can take?

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Read:
Ecsponent Financial Services’ licence withdrawn (June 2020)
FSCA debars Ecsponent Financial Services’ key directors (June)
Ecsponent extends internal forensic investigations to over R220m (September)

When addressing an issue such as this there is a procedure that needs to be followed to ensure that a fair and appropriate outcome is achieved.

The first step would be to assess whether the advice your partner received was suitable for his personal investment objectives, and whether his best interests where represented after a thorough needs analysis had been completed. If you believe this was not the case, then you will need to ask the brokers to send you their complaints policy, which will set out how to formally submit a complaint to them, and what the expected response time will be. This step needs to be completed before you approach the ombud or an attorney.

When considering any complaint of this nature, we would need to establish if the appropriate steps were taken when engaging with the brokers, and whether a proper needs analysis and record of advice were provided.

This should include the following:

1. Firstly, your partner’s brokers should have presented him with a letter of introduction, otherwise referred to as a disclosure letter, which is a legal requirement. The disclosure letter should have detailed the categories of financial services your brokers are licensed to give advice on. As your partner was given advice in respect of preferential shares, they would need to be licensed for Category 1, sub-category 8 – securities and instruments – shares. If no such sub-category was listed in the disclosure document, they were not legally allowed to provide advice on this type of investment.

2. Secondly, the brokers should have recorded your partner’s financial goals and objectives which would include why he wanted to engage with a broker and what type of advice he was looking for. This information would then be used as the basis for all recommendations and proposals. In addition to this, the brokers should have completed a basic investment risk profile, or financial personality questionnaire, in order to gauge your partner’s appetite and capacity for investment risk and volatility.

Once they had all this information, the brokers should then have performed an analysis of the most appropriate investment options for your partner, including the risks and opportunities offered by each platform or investment vehicle.

When presenting their recommendations, the brokers should have included information regarding investment fees, flexibility, time horizons, terms and conditions, fund fact sheets showing underlying funds, and historical investment performances.

From here, the brokers should have made recommendations in the form of a record of advice. A record of advice should be a detailed analysis setting out why the advisor recommends a particular solution to a client, and the extent to which it is aligned with the client’s goals. In addition, any potential investment risks should be explained and disclosed. This document should also include a record of the investment fees, a full disclosure of the fees or commissions payable to the brokers, and any potential penalties payable should the client break the terms of the investment contract.

These need to be presented in advance and explained to an investor before they make the decision to move forward with such an investment.
All of the above should have been presented to your partner in writing, and your brokers need to provide proof that this in fact took place.

If your brokers are unable to provide you with this information and you are not satisfied with the complaint that you lodge with them, you are able to take your case to the ombud, although the maximum monetary claim they may award is R800 000.

As your partner’s claim may exceed this amount, his other option would be to consider instituting a civil claim.

As we do not have all the facts of the case, I advise that you approach a reputable attorney with experience in this field who would be best-placed to advise on which option to pursue.

Do you have any questions you would like answered by registered financial planners?

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COMMENTS   1

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Sue them for everything they have.
Avoid ‘financial advisors’ at all cost.

End of comments.

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