Beware of pitfalls when deciding on investment

Date: 11 February 2017 By: Andries van Zyl

News that yet another financial advisor must appear in court to explain what had happened to hundreds of thousands of rands in investment money has left investors wanting to know what more can they do to protect themselves and their money.

Last week’s front-page article about former Sanlam financial advisor Francois Labuschagne (49) of Louis Trichardt who has to explain exactly that, not only left investors but also other local financial planners and brokers fuming. They argue that incidents like these, similar to the Chris Tissink investment scandal in 2009, cause the industry irreparable harm, placing a serious question mark over the trustworthiness of all financial advisors and brokers. “I get extremely upset over stories like these. It also seriously jeopardizes the relationship of trust between the company that person worked for and it clients,” said Mr Lourens Greyling, a financial adviser for Sanlam in Louis Trichardt.

Apart from the similarity in the timeframe during which money disappeared in both the Labuschagne and Tissink case (about 2005 to 2010), there are also other similarities. In both cases, investors were convinced by the financial planner or broker to re-invest money with them. In Labuschange’s case, he had apparently convinced investors that their current investments were underperforming and that they needed to move their money to another investment that promised higher returns. In Tissink’s case, the drawcard used to lure investors was the promise of ridiculously high monthly returns on investments. Another similarity in both cases was the apparently deliberate attempt by the financial planner or broker to avoid contact with clients. In Tissink’s case, it later transpired that statements issued by him to clients had been falsified.

“I always tell my clients that if a deal sounds too good to be true, then it probably is,” said Greyling regarding the above.

In the wake of the Labuschagne case, Sanlam issued a press release last week with tips the public can follow to avoid being scammed out of their hard-earned money. “Every year, many South Africans, in particular retirees who are struggling to make ends meet, fall prey to scamsters and schemes that promise a return far superior to that of the financial market, at a very low risk. There’s no investment that can promise 15% or 30% returns without risk. There is always a risk-return trade-off when you invest, especially in assets that can potentially have a higher return,” warned Sanlam.

But what should the public do to try and minimize or avoid the risk of being scammed by a financial planner or broker? “Find out if they’re registered with the Financial Services Board (FSB). Also, find out if the investment offered is regulated by the FSB and whether they can show proof of this?” said Sanlam. Other important questions that needs to be answered by financial planners or brokers are: what exactly is being promised; what returns will investors receive; how will the money be invested and where; how will the individual be remunerated; and whether an investor can withdraw their investment later and how?

In Labuschagne’s case, however, he was in the employ of Sanlam as a financial advisor and registered at the FSB when investors' money is said to have disappeared. Readers may ask themselves how following the guidelines above could have protected investors? In this regard, Greyling added that investors needed to make sure whom they were dealing with. “Make sure where your money is invested and arrange with that company to have statements emailed to you directly, not through your financial planner or broker only. Communication is key and make sure you see your financial planner or broker frequently,” said Greyling.  

The public should take note that there is a difference between a financial planner and a broker. Deciding whom to choose is critical when deciding to invest. “A financial adviser can offer advice and access to financial products from a range of insurers and investment companies, but is an employee or contracted to a particular company and, therefore, the company will stand in for the advice offered by an adviser. Financial advisers will focus on the products associated with the company that employs them or to which they are contracted,” said Sanlam. In Labuschagne’s case, Sanlam repaid all the investors the money they had lost because Labuschagne was in their employment when the money went missing.  

As for a broker, Sanlam explained that a broker is an independent person who advises and offers products from a wide range of insurers and other companies, but has no employment ties or other links with companies. “A broker therefore has a licence to sell a far wider range of products, although his clients don’t enjoy the same protection as a financial adviser with an employment link to a particular company,” said Sanlam.

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Andries van Zyl

Andries joined the Zoutpansberger and Limpopo Mirror in April 1993 as a darkroom assistant. Within a couple of months he moved over to the production side of the newspaper and eventually doubled as a reporter. In 1995 he left the newspaper group and travelled overseas for a couple of months. In 1996, Andries rejoined the Zoutpansberger as a reporter. In August 2002, he was appointed as News Editor of the Zoutpansberger, a position he holds until today.

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