When Does Conduct Constitute Financial Advice?
In Atwealth (Pty) Ltd & Others v Kernick & Others (116/2018) [2019] ZASCA 27 (28 March 2019) the Supreme Court of Appeal (SCA) was called upon to decide, among other issues, what conduct constitutes financial advice and what would amount to negligent financial advice. While the legislature has provided a definition of what advice is, it is not always determinable whether conduct of a financial advisor constitutes financial advice.
In this matter, the claimants approached Ms Moolman in her capacity as a financial advisor for advice on how best to invest their "spare money". Ms Moolman compiled a presentation for the claimants with a specific focus on two products. Following the presentation, the claimants made investments in accordance with the proposal in 2009. The second tranche of investments were made by the claimants in 2011. In total, the claimants invested approximately ZAR8 million. The claimants contended that they were assured by Ms Moolman that the two companies recommended by her to invest in generated higher returns through legitimate investment vehicles, however, this was not the case. As a result, the claimants suffered substantial financial loss.
The claimants sued Ms Moolman and her erstwhile employers on the basis that Ms Moolman failed to comply with her legal or statutory duties, which she owed to them, and had given negligent advice that caused them financial loss. The court correctly remarked the basis of the claimants' claim against Ms Moolman was premised in delict as opposed to a breach of statutory duties.
The first issue the SCA grappled with was whether Ms Moolman's conduct amounted to financial advice as envisaged by legislation.
In Gumede v JDG Trading (Pty) Ltd (Trading as Barnetts) the FAIS Ombudsman remarked that in interpreting the Financial Advisory and Intermediary Services Act, 2002 (FAIS), it must always be borne in mind that the purpose of FAIS is to regulate the rendering of certain financial advice and intermediary services to clients. The Ombudsman further emphasised that the definition of advice is set out in plain and unambiguous language therefore one must first consider the plain language of FAIS.
In section 1 of FAIS, "advice" means "any recommendation, guidance or proposal of a financial nature furnished by any means or medium to a client in respect of purchasing any financial product, or in respect of the investment in any financial product or on the conclusion of any other transaction...
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