Pensioners beware. In investing your life savings, you are vulnerable to the wiles of unscrupulous brokers who may “churn” you from one product to another or persuade you to put your money in a high-risk investment. Recently, the financial advice ombud, Noluntu Bam, ordered an adviser to pay a pensioner the R300 000 she lost after the adviser did both.
According to Bam’s determination, in 2001, Mrs R, of Belfast in Mpumalanga, approached Johan Kunneke, who worked for Vulcan Financial Services, a Liberty Life franchise, for advice on the proceeds of a R620 000 investment. Kunneke persuaded her to invest in a Liberty endowment policy.
In 2004, Kunneke told Mrs R he had started his own brokerage, Johan Kunneke Brokers, and proposed she invest in shares in an unlisted company, MGH Development Corporation, which would return 15 percent a year. Mrs R surrendered her Liberty policy, paying an early withdrawal penalty to do so, to invest R480 000 in MGH.
Two years later, in 2006, Mrs R was told she had to transfer her shares in MGH Development Corporation to MGH Developments Holdings, which she agreed to do.
In the years that followed, Mrs R made three withdrawals from the investment, totalling R180 000. Subsequent attempts to access her money were unsuccessful, and MGH was liquidated in 2012.
Mrs R complained to the ombud. The complaint was sent to Kunneke, to respond. He denied Mrs R had invested in MGH on his advice, and said when MGH Development Corporation converted to MGH Developments Holdings, Mrs R had the opportunity to cash in her shares. He submitted nothing to support his claims.
However, a letter Kunneke had sent to his clients when he set up his brokerage, stating that he was an independent broker, authorised to sell products from, among others, MGH Development Corporation, pointed to the fact that he had, in fact, advised clients to invest in MGH.
Bam says in her determination it is clear that Mrs R “had neither the appetite nor the capacity to take the high risk associated with unlisted securities with her capital.
“As an experienced adviser, Kunneke ought to have known about the high risks associated with investing in a single [unlisted] company. And given Mrs R’s circumstances, his advice to invest in MGH was inappropriate.”
Bam ordered Kunneke to pay Mrs R R300 000 – her R480 000 investment minus the R180 000 she had withdrawn.
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