Last week the Financial Services Board (FSB) spent three days in court arguing why certain businesses within wealth management company Dynamic Wealth should be put under curatorship. The details are not as spectacular as Fidentia or Ovation (other financial operators that have been put into curatorship) as it appears so far that no money has been misappropriated. What the FSB objects to, is the way that Dynamic Wealth has structured some of its funds.
Funds under question
According to court arguments that Dynamic Wealth had intentions of starting its own unit trust Nominee Company under the Collective Investment Scheme Control Act (CISCA) but its application was turned down. It has continued however to run” associations” which it describes as investment clubs but which in their structure resemble a unit trust fund.
These include the Dynamic Wealth Investment Association, Retirement Fund Association, Multi-manager Association, Kwanda Association, MFI association and SASEP Association. The FSB has repeatedly asked Dynamic Wealth to cease operating these funds which are effectively open to the public but are not regulated. It is important to note that Dynamic Wealth’s white labelled funds which are registered on the Metropolitan platform are not under question.
Where there is smoke there is fire
Putting a company under curatorship under these circumstances does seem draconian, however at what point does one become concerned about the management of a company? One of the criticisms of the FSB is that it has not always taken action timeously and therefore failed to protect the public — for example in the case of Ovation Global Investment Services where approximately R147-million was effectively stolen from investors.
In the Dynamic Wealth case FSB argues, and correctly so, that “one of the requirements of a registered financial company is that its management maintain an open and cooperative relationship with the office of the Registrar and must promptly inform that office about anything that might reasonably be expected to be disclosed to such office”.
The fact that Dynamic Wealth appears not to have co-operated with the FSB and is now taking a very hostile approach, has clearly raised the ire of the Register which according to law has very wide powers which is does not necessarily have to justify. (One just needs to ask the management of participation mortgage bond company Fedbond which was put under curatorship for two years only to be given a clean bill of health at the end).
Excessive costs of curatorship
Both the FSB and Dynamic Wealth need to put investor’s interests first; not their egos or their business interests. A curatorship is an extraordinarily expensive process. Ovation investors have already paid close to R50-million in curatorship costs, with R500 000 going each month just to pay the two curators. Once funds are under curatorship, investors are usually prevented from withdrawing their funds until the curator has signed off the books — this can go on for two years.
It would most certainly not be in the interests of the members of Dynamic Wealth’s associations to have their funds put into curatorship but at the same time the lack of respect for the law demonstrated by Dynamic Wealth needs to be addressed urgently. If they are breaking one law, are there other areas where they have crossed the line? Hopefully the judge will find a solution that best meets the needs of the investors who after all are the reason both Dynamic Wealth and the FSB exist.