Debarred adviser tops at Sanlam, Old Mutual

Port Elizabeth - The action that Old Mutual [JSE:OML] took against one of its financial advisers this week – when it debarred James Stern as a financial consultant because he “does not comply with personal character qualities of honesty and integrity” – not only means that Stern is not allowed to represent Old Mutual, but also that he is not allowed to act as a financial adviser at all as the Financial Services Board (FSB) has automatically debarred him as well.

The FSB confirmed that it has noted the process followed by Old Mutual. Caroline DA Silva, deputy registrar of the FAIS division of the FSB, says that the FSB has placed the debarment on the central register of the FSB as per Sec 14(1) of the Financial Advisory and Intermediary Services (FAIS) Act.

This act requires any person who provides investment advice or an intermediary service to register with the FSB and prohibits anyone to give financial advice without proper accreditation by the FSB.

“This means that Stern is debarred from doing business with any financial services provider or from rendering any financial advisory or intermediate service to any customers for the period of his debarment.” In other words, he will be acting in contravention of the law if he works as a financial consultant until his debarment is lifted.

Fin24 learnt this week that Stern has been recognised as a top financial adviser by both Old Mutual and Sanlam [JSE:SLM] in the past – recognition that is based mostly on the amount of business an adviser or consultant brings in rather than on the quality of his advice.

In the case of Stern, Old Mutual said that they “found discrepancies in his paperwork in so far as he duplicated customer signatures and altered postal addresses to mislead customers and misrepresent facts to Old Mutual".

Lee Nakan, executive general manager who deals with brokers at Old Mutual, says that Stern’s debarment was related to some of his dealings with the life office while he was a representative of an independent brokerage and before he joined Old Mutual as a mandated agent late in 2012. He was the top producer for Old Mutual in 2008.

“Old Mutual cannot be held responsible for financial services he provided to customers before operating under our licence, but we are reviewing all the facts and circumstances to ensure that we make informed and fair decisions about clients’ positions,” says Nakan.

At the time, Stern was listed as managing director of an independent brokerage, Quantum Investments. Quantum boasted offices around SA and then listed 9 partners with Stern listed at the FSB and at life offices as the key individual. At present, Quantum lists only 3 directors and it seems that 3 others left to establish Hercules Capital which holds interests in liquor stores.

Quantum Investments is still registered as a service provider in good standing at the FSB and is now run by Richard Drinkwater. Drinkwater is also listed as key individual of Quantum. 

Sanlam acknowledged Stern as Broker of the Year in 2010 and 2011, while he was at Quantum. Sanlam says Stern was not a Sanlam representative, but was authorised to place business with Sanlam through Quantum as Quantum was (and still is) authorised by the FSB.

Following his debarment, Stern was removed as a representative from Sanlam’s records and is no longer authorised to place business with them.

The FSB notes that in terms of Sec 14 (1) of the FIAS Act, an authorised financial service provider must ensure that all representatives that act on their behalf must comply with the legal requirements. “When anyone contravenes the Act in a material manner the service provider must remove them from their own register of representatives.”

The service provider is then obliged to inform the FSB as to the reasons for the debarment and the FSB then publishes this debarment on the central register so that the public may have access to it in the interests of their own protection. In this case Old Mutual did the investigation and effected the debarment.

The FSB can also independently debar an individual where the FAIS division of the FSB will perform the investigation.