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[Weekly Wrap] Massive warning to advisers over record-keeping

Monday 2nd of June 2014

This started as a News Alert and has morphed into a late Weekly Wrap. As often happens, big announcements come out on a Friday afternoon. The latest example was last week when the Financial Advisers Disciplinary Committee (FADC) released its decision on the latest case taken by the FMA to the committee.

This case is fascinating as the QFE the AFA worked for dobbed him into the Financial Markets Authority, which then took him to the disciplianry case. We are not allowed to reveal identities, however don't be surprised if there are further ramifications with advisers leaving this firm in protest to what happened.

We have a report on the hearing and one on the decision with the links below. At the heart of the matter the adviser hadn't kept adequate records, lost the ability to sell his business, yet the committee notes: "This is a case in which there has been no client complaint and no identified loss for any client of the AFA. Further there has been no identified material advantage to the AFA."

Rather the FMA is sending a massive warning to AFAs over their record keeping requirements.

Decision: Suppression, supervision for Adviser X

Hearing: FMA seeks financial penalty

The other topic of the moment for AFAs is DIMS. We are expecting to see the latest guidelines from officials any day now. There is little doubt the direction DIMS is heading is worrying for the future of the investment advice community. Indeed I have heard some businesses saying they have put their IFA plans on hold while DIMS is being worked out, and it could spell the end of some firm's presence in the IFA world. Others though see it as an opportunity. One of these is Grosvenor Financial Services which has some presentations this week -see the diary.

I can't help but agree with others who describe these developments as an over-reaction to the David Ross ponzi scheme.

Last week I also spent time at the SiFA conference down in Taupo. It was an excellent conference with lots of good discussion and presentations. We will have a few more stories from the conference over the week or so, including the latest from Ralph Stewart's new venture and (hopefully) a little video on investing in equities for income.

This is a little, well-deserved, plug. If you don't know much about SiFA visit their website at sifa.org.nz. They hold two conferences each year and have introduced a "try-before-you-buy" option where advisers can attend a conference before deciding on whether to join the association. The next conference in in Christchurch in November.

And to wrap up things we'd be interested in your views on this idea. If you are interested in home loans and what's happening in the mortgage broking world, we are trialling a weekly podcast of news and analysis. The first broadcast is here. Have a listen and let us know what you think.

Have a great, short, week.

- Philip

Comments (10)

LPL LPL

"Authorised Financial Adviser ends up in front of disciplinary committee after being dobbed in by his QFE." Lets hope there are ramifications for the QFE - aren't they supposed to oversee the advisers in their group. Train and up skill where necessary. The industry is full of what are now called QFEs that think training is sitting someone at a desk giving them a couple of brochures and leaving them to it.

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10 years ago

interested observer

Important to remember that the QFE had a requirement to notify FMA of the activity under their Reporting and Notifications Standard Conditions. It's not just a case of them 'dobbing the adviser in' for no reason. If they terminate or conduct formal disciplinary action against an AFA in relation to financial adviser activities, they're compelled to notify.

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10 years ago

Alison Gilbert

So, in to ingratiate itself with the FMA ("aren't we good boys Sir ?") this QFE has decimated the value of a man's business and publicly humiliated him; all because of "record keeping errors "....

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10 years ago

interested observer

No Ally, according to the notes from the hearing, because of multiple breaches of the Code of Professional Conduct for AFAs - and the QFE's aforementioned obligation to notify. Are we suggesting that the QFE made the AFA (you assume it's a man) breach the Code? Is it not the AFA who is responsible for meeting Code standards? If it's a senior adviser - you'd like to think they knew what they were supposed to do, and either chose not to, forgot, or couldn't be bothered. Which is worse? Ignorance or apathy? Are either excusable? To suggest it's merely obsequious of a QFE to meet the standards they signed up to, is telling of an attitude towards the wider system I'd suggest. Records - accurate, complete records - are KEY. They evidence the knowledge, good practice, good advice, client centric care, skill and diligence.

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10 years ago

Brent Sheather

I tend to agree with Ally. If you read the decision and the annexure the FADC contradicts itself by saying the adviser breached standard 8 but then says “the offending simply related to the failure to keep records”. That doesn’t make sense. If the advice wasn’t suitable then how does keeping records fix a mis-specified asset allocation? There are lots of other issues with this decision that I am going to comment on but it looks very much like the work of people with a good knowledge of the law but no knowledge of what best practice looks like. Also to what degree did the QFE’s high fee structure constrain the adviser from recommending “suitable advice”? That is the issue for the FMA and I hope they see it because it is a systemic risk in this industry as I have said a hundred times before.

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10 years ago

interested observer

I'd agree Brent - keeping records of poor advice doesn't fix it -but if you want to argue that your advice is good, then you need to keep records of it. Also - I'm not necessarily blindly defending the QFE here. Simply pointing out that their actions were at least partly directed by their obligations. However, they haven't publicly humiliated the adviser, I don't see that their name has been published anywhere? And, AFAs can choose to be part of a QFE, or not. I'd say if they don't feel that they're able to provide suitable advice by being part of a QFE, and that challenges their integrity, then they're free to leave it. Granted, the existing client portfolio built up will be a big incentive to stay, and its not so simple, but to say that it's all the QFE's fault when economics is taking ethics for a walk on the lead isn't necessarily fair. Having said that, reward structures (not just fee structures) are something that needs some closer attention, IMO.

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10 years ago

Clayton Coplestone

Well said Brent. I look forward to your further comments

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10 years ago

AFA Muggins

What I found most interesting about this, was that I knew only what was reported in the media until I received a broadcast email from the person overseeing this at the QFE involved, explaining what they had done, and identifying where the person involved, had originated from, career wise. I have no relationship whatsoever with the QFE, so was rather perplexed, and obviously enlightened. It didn't tell me the name of the adviser, however the QFE is obvious, and they mention in the email, where the adviser used to work previously.

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10 years ago

interested observer

Good Returns actually published the name of the QFE in the original article, so yes, anyone following would know the QFE. Googling the story still displays the QFE name in some results. But, they weren't to know that name surpression would extend to the firm.

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10 years ago

gavin austin

AFA Muggins - if what you say can be substantiated then i would hasten to say that your information source and the content be sent to the Disciplinary Committee as it would appear that the QFE is in breach of their order for Suppression. If you don't feel comfortable with that approach then you could complain to the FMA or send me the information in my capacity as an expert opinion party to the proceedings(ie you wouldn't be in breach as I am already party to all the facts of both sides of the case having signed the appropriate confidentiality papers) I will then in the interests of natural justice make sure all the appropriate parties are notified so they can act as they see fit.

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