First FADC action taken

UPDATED: The Financial Advisers Disciplinary Committee has revealed its first decision, censuring Stephen Musaphia and ordering supervision.

Tuesday, August 27th 2013, 6:00AM

by Susan Edmunds

A hearing was held in Wellington to deal with the cases of three advisers earlier this month. Two were to be decided on the papers after the hearings and one had the complaint dismissed.

The committee has revealed that it has taken action against Musaphia.

Musaphia was referred to the committee over breaches of the following code standards:

CS One, which requires that advisers put a client first
CS Eight, which says that advisers must take reasonable steps to ensure personalised service is suitable for the client
CS Nine, which covers the need for a written basis for advice, and
CS12, which relates to record-keeping.

Musaphia had been an AFA since 2011 but after a monitoring visit, the FMA raised concerns about the suitability of advice for a client and the lack of documentation available. A second monitoring visit and interview with the client revealed that although the client was a solo parent, only working 20 hours a week and needing advice on what to do with a lump sum insurance payout. Eighty-five per cent of the payout was to be invested and there was a chance that the client would want to withdraw some of the money to buy a first home.

The client did not remember being asked about her financial situation or goals. The client wanted the money to be kept safe, with as little risk as possible. Musaphia and the client disagreed on what was discussed. He said he was working on a three- to five-year timeframe but documentation acknowledged that the client might need the money within that time.

He recommended a balanced portfolio which the FADC decision said was inappropriate for the client circumstances. He did not discuss lower-risk alternatives, or highlight the fact that his strategy was underweight in US and Japanese stocks. He did not invest in Europe at all.

There were only brief, handwritten notes about their conversations and the FMA said there were inadequate records to show how Musaphia determined the advice was suitable. He did not provide an adequate explanation of his basis for advice. The investment has since returned a modest profit.

He was prepared to agree to breaches of CS8, CS9 and CS12. The complaint relating to CS1 was dismissed because no evidence would be called.

At the hearing, the committee said it would make a decision as soon as possible. In its decision, now published on its website, it says Musaphia has been censured and will be subject to supervision by Timothy Fairbrother, of Rival Wealth.

The FMA confirmed that it would be able to act promptly should the objectives of the supervision plan not be achieved.

Bourke-Shaw Case

It was alleged that Rodney Ian Bourke-Shaw had breached the code standards:

CS 1, which requires that advisers put a client first,
CS 6, that an adviser must behave professionally,
CS 8, which says that advisers must take reasonable steps to ensure personalised service is suitable for the client,
CS 9, which covers the need for a written basis for advice, and
CS 12, which relates to record-keeping.

He disputed only the breach of CS1 – the requirement to put a client first.

The FMA prepared a summary of facts which Bourke-Shaw accepted and the committee found that there had been breaches of the other CS6, CS8, CD9 and CS12.

The case is still awaiting more documentation before a final decision is given. Bourke-Shaw has given up his AFA registration.

« [Weekly Wrap] Adviser advocate resigns

IFA working on pro-bono offering »

Special Offers