Sanlam told to pay up

The Financial Advisory Intermediary Service (FAIS) ombud determination ordering insurance giant Sanlam to compensate an East London widow to the tune R254000 because of poor investment by one of its employees is expected to have wider implications.

The Financial Advisory Intermediary Service (FAIS) ombud determination ordering insurance giant Sanlam to compensate an East London widow to the tune R254000 because of poor investment by one of its employees is expected to have wider implications.

It is expected to prod financial services providers into keeping their agents' activities under closer observation.

Financial Services Providers deputy ombud Noluntu Bam has ordered Sanlam to repay Elizabeth September the full amount of her investment, with interest, after she found that its employee, Willie Jordaan, was liable for her loss.

Bam found that Jordaan was negligent to place September's money with the beleaguered Fidentia.

Jordaan had also placed 17 other clients' investments with Fidentia. Seventeen of them, with a total investment value of R2,19million, were still invested with Fidentia when the order for its judicial management was granted.

September said she decided to invest R254000 and to live off the income generated when Jordaan motivated her to invest with Fidentia Asset Management.

In November 2004 he made the necessary arrangements with a Mr Heydenrych, a trustee of private investment club Antheru Investment Trust, to place the investment with Fidentia.

September received a monthly income until February 2007 when the investment ceased. She learnt through the media that Fidentia had been placed under judicial management.

She said she approached Sanlam, who informed her that her "investment was with Antheru Investment Trust and with Fidentia Investment Managers, both of which are in no way connected to Sanlam Life..."

Sanlam denied liability for any loss the client may have suffered.

September was further advised that she should approach Fidentia and-or Antheru and if she were dissatisfied with the outcome, to approach the office of the FAIS ombudsman.

On June 22 2007 she wrote to the curator of "Fidentia-Antheru" to enquire about her investment. On the same day she also wrote to the FAIS ombudsman, seeking assurance that she was "not going to be left destitute".

In its response, Sanlam told the FAIS ombudsman that Jordaan was a financial adviser employed by the company until his contract was terminated after disciplinary proceedings in May 2007.

Sanlam claimed Jordaan had placed investments for clients at Fidentia, contrary to explicit instructions as to where investments may be placed.

Sanlam said the 17 clients "will in all likelihood lose their full investments or most of them".

Most of these clients were retired, older than 55 years and their knowledge of investments and financial markets were not very sophisticated.

In many cases the money invested with Fidentia was the investors' only or main source of funds from which to provide an income for themselves.

In arriving at a decision the deputy ombudsman had to determine whether Sanlam can be held liable for its employee's conduct.

In other words, did Jordaan act within the scope of his employment or did he embark on a "frolic of his own?", as Sanlam claimed.

Bam said statements from a number of Sanlam clients, who were adversely affected by Jordaan's advice to invest in Fidentia, appeared to have based their decision on the fact that Jordaan was an employee of Sanlam.

"Where the employee is partially promoting the interest of the employer and partially his own, the employer will be liable," said Bam.

She said Jordaan was promoting both his and his employer's interest while using his employer's resources.

The deputy ombudsman said: "Sanlam is no doubt a major role player in the financial services industry. So the investors appear to have been lulled into a false sense of security because Jordaan was its employee.

"Given these facts, I am of the view that Sanlam ought to be liable for the loss suffered by the complainant," Bam ruled.

Experts believe that the determination will probably be challenged by Sanlam because the determination sought to find vicarious liability with the company for the employee's negligence.

It says the determination will not only impact on the people recommending the investment of many millions on behalf of widows and orphans in Fidentia, but also for employers whose agents trade on their status as 'big name' representatives to recommend dodgy investments to their clients.

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