The responsibilities of the financial service providers (FSP) and their representatives
30 November 2020 | SR Mokhele
In terms of section 1(1) of the Financial Advisory and Intermediary Services Act, 37 of 2002 (“FAIS Act”), advice means any recommendation, guidance or proposal of a financial nature furnished, by any means or medium, to any client or group of clients:
- In respect of the purchase of any financial product; or
- In respect of the investment in any financial product; or
- On the conclusion of any other transaction, including a loan or cession, aimed at the incurring of any liability or the acquisition of any right or benefit in respect of any financial product; or
- On the variation of any term or condition applying to a financial product, on the replacement of any such product, or on the termination of any purchase of or investment in any such product.
The case of Atwealth (Pty) Ltd and Others v Kernick and Others (116/2018)  ZASCA 27;  2 All SA 629 (SCA); 2019 (4) SA 420 (SCA) (28 March 2019 concerns the liability of an investment advisor who rendered financial advice to her clients. The clients suffered significant financial loss on the investments entered into following a presentation made by the financial advisor.
The Kernicks (clients) contended that the advice given by Ms. Moolman (financial advisor) was to invest their funds in certain investment products. The Kernicks further contended that they were assured by Ms. Moolman that the recommended investment products generated higher returns through legitimate investment vehicles than was the case with alternative financial products.
The Kernicks sued the appellants on the basis that Ms. Moolman, who, at all relevant times, was either in the employ of Atwealth or Vaidro, had failed to comply with the legal duties which she owed to them and had given negligent advice.
They said such failure had caused them significant financial loss, as the investment companies in which they invested, did not produce positive investment returns but paid returns out of investor funds.
Central to appellants’ case, was whether Ms. Moolman provided advice to the Kernicks and, if so, whether this advice failed to comply with Ms. Moolman’s legal duties and caused the Kernicks to invest in ill-fated products.
General code of conduct requires that financial service providers and their representatives fulfil the following responsibilities:
- They have to act honestly and fairly, and with due skill, care and diligence, in the interests of clients and the integrity of the financial services industry;
- When representations are made or information provided to a client, it must be factually correct; it must be provided in plain language; it should not be misleading; it must be adequate and appropriate given the level of knowledge of the client and it must be provided timeously so as to afford the client reasonably sufficient time to make an informed decision;
- They should obtain appropriate and available information regarding clients’ financial situation, financial product experience and objectives in connection with the financial service required;
- They have to act with caution and treat clients fairly in a situation of conflicting interest.
In this case no evidence was led to show that any information provided by Ms. Moolman to the Kernicks was in any respect untrue or factually incorrect. Therefore, the Kernicks legal action was dismissed with costs.