Octogenarian Frikkie Janson thought he was on to a good thing when one of the star financial advisers at Liberty Life took charge of his retirement portfolio. What followed was a nightmare for the pensioner. We write about Janson's long battle to reclaim what was his with the help of a tenacious, good-hearted adviser who would not be cowed.
This is a story of greed, exploitation of the aged, corporate malfunction, initial regulator tardiness and, finally, the persistence of one good man.
The cast is:
- The victim: an 85-year-old retired man from the Marble Hall farming district in Mpumalanga, Frikkie Janson, known affectionately to many of his acquaintances as "Oom Frikkie".
- The villain: financial adviser Jano Oberholzer, of the now defunct Pretoria-based financial services company Jano Insurance Brokers.
- The co-conspirators: financial services companies Liberty Life and Momentum.
- The one good man: Les Abrahamse, of the Randburg-based company Headline Financial Services.
- A supporting cast of Daleen, Oom Frikkie's daughter, Personal Finance, the Financial Services Board (FSB) and the Ombudsman for Long-term Insurance.
The story starts in December 2000 when Janson, who was then 79 years old, was living quietly in retirement with his wife. He had about R2.5 million in a Sanlam money market investment and in shares. These investments were the Jansons' main source of income.
At that stage, Oberholzer entered the scene. He was considered a star salesperson by Liberty Life, which classified him as a member of its prestigious Broker Production Club for six years, of which one year was in the elite platinum section of the club. Membership of the club was driven by quantity - not quality - of sales (which means the appropriateness of the advice was not taken into account).
Following the destruction of the World Trade Centre by al-Qaeda terrorists on September 11, 2001, Oberholzer persuaded Janson to sell his portfolio of blue-chip shares.
The money realised was left in cash investments.
About a year later, Oberholzer started to put together a complex structure of life assurance investments using mainly products from Liberty and one product from Momentum.
Complicated product structure
By the time Abrahamse stopped Oberholzer in his tracks, he had managed to create a structure of life assurance products issued by Liberty Life that had earned him commission of almost R400 000. And if Oberholzer had not been stopped, he would have raked in close to R500 000.
The complex structure of products included borrowing from one policy to pay for another. Most of the actual money was put into single-premium policies. Instead of leaving the money to grow or to provide the Jansons with an income, Oberholzer set about creating another flow of commissions for himself by having Janson make loans against the single-premium policies to pay the premiums on recurring-premium policies.
This structure is simply a commission-generating ruse, which is not in the best interests of an investor.
The amount of money in Janson's single-premium policies, from which the loans were made, was not large enough to sustain the payments of the recurring premiums. Most of the policies were for 10-year terms, with an option to reduce the terms to five years. The Momentum policy had a recurring premium of R200 000 a year for 10 years.
The Momentum policy alone brought in commission of R97 500 for Oberholzer. Within about three years, the whole edifice would have collapsed, leaving Janson virtually broke.
First, the flow of income to the recurring-premium policies would have dried up and the policies would have lapsed, leaving Janson with nominal amounts in the single-premium investments.
There were a few small income-generating policies but these would hardly have been sufficient to keep Janson financially secure.
As it was, when Janson's wife, Sofia, died in 2003, he did not have the ready cash to pay for the funeral.
Abrahamse was also critical of some of the underlying investments selected by Oberholzer for the endowment portfolios as not being suitable for a couple with the Jansons' risk profile.
Oberholzer has not been able to provide any proof that at any stage he carried out a financial needs analysis or that he gave Janson a written proposal, "based on his risk profile, income requirements and future capital needs", that could have justified any of the initial disinvestments and reinvestments in the life assurance policies.
When challenged by Abrahamse in a letter in November 2002 about the lack of a financial needs analysis to justify the investments, Oberholzer replied: "It was really how I and the client agreed."
FAIS Act requirements
Abrahamse says that Janson, who kept a record of all his financial affairs, has no record of any written advice or any analysis on which the advice was made.
He says that for many years it has been standard practice to do a "fact-find" on a client and then provide copies of the facts and the advice based on the facts to the client in writing.
At the time, there was no legal obligation for Oberholzer to carry out this key part of providing financial advice.
It became a legal requirement to undertake a financial needs analysis to provide appropriate advice only with the full promulgation of the Financial Advisory and Intermediary Services (FAIS) Act in October 2004.
However, by 2001 most financial services companies were already providing sophisticated computer-driven software programs to intermediaries so they could give appropriate advice and sell investments in the best interests of consumers.
Reputable financial advisers have been using the programs for at least the past 10 years.
Liberty had and still has, with Blue Print, one of the better computer-driven financial needs analysis programs available.
Before the advent of the FAIS Act, most financial services companies were calling for voluntary self-regulation. However, in the Oberholzer case, the evidence is that little was done to protect the client. For example, neither Liberty nor Momentum insisted on Oberholzer having proper skills to sell their products.
In reply to questions about Oberholzer's skills, Liberty said, "the necessary reference and credit checks were run". It did not say what these checks were.
Momentum said it "conducted standard checks on Jano Oberholzer that included credit references, bank references, his years' experience in the industry and relevant security offered for possible claw-backs of commission". Neither Liberty nor Momentum made any mention of any specific skills-check or product-training requirements in their responses to questions from Personal Finance.
Asked how it could justify selling 10-year investment policies to an 80-year-old, Liberty said: "While we don't know the personal circumstances or the discussions surrounding the advice given by the broker, on death the client would not have been prejudiced by the fact that he was sold a 10-year endowment as the client would receive the investment value subject to a minimum of return of contributions.
"After five years, the client would not be subjected to recovery costs if he chose to take his money."
In replying to the Personal Finance question on the issue, it posed the question itself, saying: "However, the question does remain as to why this option was selected for him."
Liberty says it does not have specific checks in place to ensure that there is no mis-selling to the elderly.
"However, we provide extensive support for the legislative requirements for a financial needs analysis and disclosures, which are aimed at protecting policyholders and assisting licensed intermediaries in providing advice appropriate to the client's individual circumstances," it said.
Momentum said that generally it accepted new business only from clients who were not older than 75 years. "In this case, the broker, on behalf of his client, submitted a special request. Based on this motivation by the client, an exception was made with conditions set by Momentum."
The only financial services company to come out of the Janson saga with its reputation intact was Sanlam.
It spotted that Oberholzer was using the same withdrawal form to make repeated withdrawals from Janson's Sanlam money market account for the various endowment investments. It put a stop to the practice.
The entry of Abrahamse on the scene at the end of 2002 was the start of a long, hard fight by the Janson family and Abrahamse, which initially saw both Liberty and Momentum siding with Oberholzer.
The fight got so nasty that Oberholzer had his lawyer send Janson's daughter a threatening letter for publicly criticising Oberholzer for what he had done to her father's finances.
Abrahamse said that when he initially approached Liberty, "I was given the run-around."
Fresh pressure applied
In frustration, he enlisted the aid of both Personal Finance and the Ombudsman for Long-term Insurance to get justice for the Janson family. Personal Finance had to send numerous questions and reminders to Momentum and Liberty to get some action.
Liberty now claims that the Janson complaint came to its attention only in July 2003 and that resolution was reached in September 2003.
At some stage, Oberholzer took fright, and various meetings were set up with Oberholzer, Janson and the product providers.
Under pressure, Oberholzer and the life companies started to give way in stages.
Liberty and Oberholzer agreed that Oberholzer should repay part of the commission paid to him. Normally, life companies put any clawed-back commissions into their own back pockets, but in this instance about R150 000 was passed on to Janson.
But when Liberty asked Janson to sign an indemnity against further claims, Abrahamse and Janson discovered that the indemnity included Oberholzer.
Investigation is launched
Liberty said Oberholzer was included at his (Oberholzer's) request. Liberty said it agreed to Oberholzer's request because it did not want to "protract the matter any further than it had already been".
In May 2004, Momentum started its investigation, which it described as "lengthy and complicated".
Eventually, after the intervention of Peet Nienaber, the Ombudsman for Long-term Insurance, a settlement was agreed in July 2005, with Momentum reducing the term of the policy from 10 to five years, making it a single-premium rather than a recurring-premium policy, and paying back costs of R21 000. Commission of R88 500 was repaid by Oberholzer.
The story, however, did not end there. Janson and Abrahamse were still not satisfied with a number of aspects of what had happened and continued to put pressure on the companies, as well as on the FSB, to take more action.
Business carries on
The arrival of the FAIS Act in November 2004 gave them a new weapon.
Although they could not complain to the FAIS ombud because the transactions had taken place before the full promulgation of the FAIS Act, they could object to Oberholzer's registration as a financial services provider.
The pressure applied by Abrahamse, the Janson family, Personal Finance and Nienaber has resulted in Oberholzer effectively being banned from the financial services industry.
- In August 2005, Liberty terminated his contract "after a forensic investigation revealed evidence of practices such as replacing policies and duplicating a client's signature".
- In September 2005, Momentum formally terminated Oberholzer's contract based on its application for an S-reference.
- On January 6 this year, Oberholzer was S-referenced by the Life Offices' Association. This means he is banned from selling life assurance products for five years. The S-referencing followed investigations into the Janson case and other transactions conducted by Oberholzer by the forensic departments of both Liberty and Momentum. Momentum applied for the S-reference, supported by Liberty.
- On June 12, an appeal board appointed under the FAIS Act met to hear an appeal by Oberholzer against an FSB decision to rescind his financial services provider licence.
At the time of going to print, a final decision had yet to be handed down by the appeal board.
And Oberholzer was not completely out of the life assurance industry. He has sold his business to another intermediary. But his wife was, at the time of going to print, a director of the new company and Oberholzer was working for the company, ostensibly doing "administrative work" and introducing the new intermediary to his former clients.
And the Janson family? Abrahamse took over Janson's financial affairs, by which time the assets had been reduced to a value of about R1.2 million.
Today, on the back of sound advice and asset management, Janson is receiving a steady income and his assets are back on track.
Ready to do battle on the side of right
There are not many financial advisers who would go to battle for almost three years to seek justice for an 85-year-old man, particularly when there may not be any reward for doing so. But there are financial advisers who have a strong sense of public duty and fairness. One such person is Les Abrahamse of Headline Financial Services.
Quietly spoken and reticent about being interviewed about what he has done, Abrahamse is one of those people who go quietly about their job.
After completing his matric in the Western Cape, Abrahamse started his working life as a correspondence clerk for Old Mutual at its Pinelands head office in Cape Town. He moved to what was then the Transvaal and soon afterwards joined property developer Schachat Cullum.
In 1995, Abrahamse returned to the financial services industry. He joined a Liberty Life franchise, but found that he was more interested in helping people with their investments and personal goals than selling risk assurance against death and disability.
"Investing is creative and helps people meet their lifestyle needs," Abrahamse says.
He decided to join accounting company Betty and Dickson in 1998.
"I think it is important for financial planners to align themselves with other professions," he says.
In 2002, Abrahamse formed a partnership with Barry Phillips and two accounting practices to establish Headline Financial Services.
Abrahamse says that by having professionals involved in a financial planning company, it can offer other services, such as proper tax and estate planning.
Man of principle
Abrahamse is a sincere convert to the principles the Financial Planning Institute applies to financial planning. He says everyone should expect their financial planner to follow the following six steps:
1. Establish and define the nature of the relationship you will have with your planner. This will include such things as how your financial planner will be paid and what services you will receive.
2. Gather information about your financial affairs. This includes you, the client, telling your planner about your current financial situation, as well as your personal and financial goals.
3. Your planner must then analyse the data.
4. On the basis of the analysis, you must be presented verbally and in writing with your financial planner's recommendations and solutions.
5. Once you have agreed on a plan, it must be implemented by your planner.
6. You and your financial planner must monitor and review the plan on a regular basis.
Abrahamse believes that if all financial planning is done using these six principles, the likelihood of things going wrong is very limited.
He then overlays these principles by using the research and investment management services of acsis, the asset consulting and financial planning company. The company provides the research and implementation support services to effect the lifestyle financial planning approach applied by Headline.
Abrahamse says he prefers to concentrate on retirement planning.
To know a person can retire financially secure is very satisfying, he says. Abrahamse welcomes the new regulatory regime in financial services.
"I don't find compliance a threat. We were doing what the Financial Advisory and Intermediary Services Act requires long before it became law in 2004. Compliance shows our clients that we give attention to detail," he says.
Abrahamse is married to Amanda and has three daughters. Apart from a passion for sailing and fishing, he also jogs and plays golf.
Five financial tips from Les Abrahamse
1. Ensure that your financial planner fully understands all your future lifestyle goals. Even those goals that you may consider to be minor must be brought into the financial planning process.
2. Do not procrastinate. If you want to reach your financial targets, you must start saving and planning today. The longer you leave it, the more you will have to compromise on your retirement lifestyle goals.
3. Delay instant gratification - the failure to put off current "wants" until you can afford them is increasingly becoming the biggest challenge to financial security. People are victims of a consumer society. Simply put, do not buy that new car, particularly if you have to borrow money to do so. Delay gratification and plan properly.
4. Understand the power of compound interest. The earlier you realise the power of compound interest and apply the principle, the sooner you will start to save. And the longer you save, the more your money will work for you, earning investment returns on investment returns.
5. Review your financial situation on a regular basis to ensure you have the correct targets and are on track to achieve them.
This article was first published in Personal Finance magazine, 3th Quarter 2006. See what's in our latest issue