Adviser pays to clear charges
An Institute of Financial Advisers (IFA) Disciplinary Committee has ruled against awarding costs to an adviser found not to be in breach of the Code of Ethics.
Wednesday, September 16th 2009, 5:15AM 
6 Comments
by Sonia Speedy
The IFA member was charged with breaches relating to making a false or misleading statement and failing to make a reasonable investigation into the suitability of the financial product recommended. Both charges were dismissed by the Disciplinary Committee in July.
The adviser sought $17,999.16 in reimbursement of costs, but late last month the committee ruled that costs would not be awarded to the adviser, stating that the common law rules of natural justice did not override the contractual relationship between the IFA and its members. This decision followed consideration of an English Court of Appeal decision, the case of Baxendale-Walker v Law Society, where award of costs was denied for a solicitor who had faced charges brought by the Law Society, which were in part dismissed.
The adviser argues she was forced to prove herself innocent at the tribunal, rather than being proven guilty and fears the latest ruling will force many advisers to plead guilty at the early stages of a complaint to avoid a lengthy and costly legal process.
IFA president Lyn McMorran says the ruling highlights that the Disciplinary Committee is "not a puppet" of the institute and that there was no bias towards finding a guilty verdict.
"If they (the committee) don't believe that there is a case there, they will dismiss it," she says.
McMorran says the precedent discussed in the UK case argued that the Law Society had a role in upholding standards and ordering costs against it discouraged them from taking such cases.
"The whole point is that we don't want to be dissuaded from doing that just because we don't think we can afford to," she says.
McMorran adds that the biggest protection the IFA provides advisers is its Practice Standards and advisers should ensure they understand and adhere to their obligations under them.
"If you do, it makes most of it all go away," she says.
Since June 2008, nine complaints have been dealt with by the disciplinary tribunal, in which only one had a not proven finding.
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As I understood it, the Committee would first examine the accusation, seek a response from the accused, then decide whether the complaint would go to a hearing, incurring costs. While I'm pleased the adviser was exonerated, how did the Committee decide to prefer the charges after the initial examination?
I suspect there's an element of "grandstanding" for the Mandarins in the process of determining the future framework, and want to be seen to have "teeth". Bah!
This decision strikes fear into the people who are supposed to support and believe in the IFA, providing a strong disincentive to be any part of it, while at the same time doing nothing to enhance industry credbility and reputation with the general public. Do they really think suffering an $18,000 penalty for being "Not Proven" has helped elevate the IFA in public eye? Has it helped promote the IFA as a meaningful and credible group whose members uphold standards of professionalism and integrity? No it bloody well doesnt. If they can get it right 8 out of 9 times then when they are mistaken they can afford the costs. Does McMorran really belive the greater perception of the Committee was that they are "Puppets"? Shows a real contempt for their membership and potential members if you ask me. McMorran walks on dangerous ground by saying that "If they dont think there is a case they will dismiss it". What? So this adviser is still guilty but has merely been successful in defending the case? Ahhh, so we'll just hit them with the costs rather than a fine. That'll teach 'em.
What little credibility being a member might have, what little difference it may make in the eyes of my clients is totally offset by the risk that a spurious complaint, which I manage to defend can still cost me big time. I prefer to demonstrate to clients that I operate ethically, and professionally through actions, and I dont need three little letters on my business card to do that. Thanks Lyn, you can keep your code of ethics, your contempt and your soap box.
A Westpac employee appearing before the Disciplinary Committee would normally expect to have representation provided by the bank, again at no cost.
She doesn't necessarily have any appreciation for the true costs (and risks) of providing financial advice.
What on earth are we doing electing someone into this position that has an obligation to an employer.
There is no empathy towards the self employed broker at all in this woman's approach.
Do we have ourselves to blame we after all elected her. Lesson learned I hope.
Jan
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As i see it, the rulings to date show - have charges laid against you where you are found guilty, you pay IFA its full costs and wear your own. That makes some sense to me, but it will be interesting to observe what happens where a member is charged on X counts, is found guilty on 50% of them but not guilty on teh other 50%.
Where you are charged and are found not guilty on all charges, you wear all your own costs - you won't be compensated. I note teh submission by teh brief for the IFA that the Rules do not provide for the award of costs against IFA - teh case didn't get decided on that point, but I would have thought IFA should immediately change its Rules to allow costs to be awarded against IFA.
THe English CA case the Tribunal relied upon seems to be distinguishable from the pesent case - the UK Law Society is a statutory body whereas IFA is a voluntary organisation, and second the defendant in the UK case was found guilty on some of the charges whereas teh NZ adviser was found not guilty on all charges.
Given teh expense of legal action, there is probably not enough at stake to take the issue into the formal legal setting, but I think this is an important issue. I would be happy to pledge $500 to a fund to take this case further if someone takes up teh running and would challenge others to considering doing the same.
I sincerely believe teh defendant member has been very hard done by.
AS