AFAs censured by FADC

• Tweet

A QFE’s investigation into its advisers’ replacement business processes resulted in two referrals to the Financial Advisers Disciplinary Committee.

Wednesday, September 26th 2018, 6:00AM 3 Comments

The committee has published the details of two decisions it made on the papers.

The cases were similar: The advisers were referred to the FADC by the Financial Markets Authority, after admitting breaches of the code.

A QFE submitted a report to the FMA about it investigations into AFAs with high levels of replacement business between 2011 and 2015.

Four AFAs were identified - the two advisers in question were half that number.

One adviser breached standard six (behaving professionally) and 12 (keeping information about personalised services for retail clients). The other breached standard eight (agreeing the nature and scope of service) and 12 (keeping information about personalised services for retail clients.

The first adviser had not included a needs analysis, comparison of relevant policies and key differences for a client wanting to change policies, an explanation of risks of changing provider or an explanation of reasons for a recommendation in a client file. While a statement of advice was provided, it was not provided until the replacement policy was in place.

With another client, the adviser said $40 to $45 a month could be saved by switching provider. The amount saved in reality was only $12.59 a month. 

The second adviser's client file in one case was missing a comparison of premiums at the level of cover the client wanted, or an updated price comparison to allow for time since the original recommendation. In another, the adviser used an execution-only process but had no documentation to show the client had been informed.

The first adviser’s breaches happened between June 2013 and March 2014. The second’s was between July 2013 and February 2015.

In both cases, the conduct was described as being the lower end of the scale of concern. "The committee notes however, the nature of insurance products means that the impacts of an incorrect process being followed may not be revealed for some time and, while the probability of loss occurring is low, the consequences for the client in question could be seriously adverse."

The advisers had not been dishonest, the FADC, though there were gaps and delays in how they carried out their roles, which were not in the spirit or letter of the law.

There was no loss to the client, no material advantage to the adviser and the breach was a shortcoming in technical performance.

In both cases, the advisers had completed a supervisory programme overseen by their QFE.

The FADC censured both advisers.“This serves to highlight that the breaches acknowledged by the respondent are unacceptable in a professional person holding the qualification of AFA. This order comprises the least restrictive and reasonable imposition on the respondent, consistent with the objectives of admonishing the code breaches.”

The FMA had sought an order from the committee that a single on-site monitoring visit be arranged with FMA staff within six months. The FADC said it did not consider this necessary.

The committee said would usually publish names but in this case there had been no financial loss to any clients,and it was a similar scenario to that of "adviser x", who also had his identity suprressed.

The committee has only heard a handful of cases since it was formed as part of the Financial Advisers Act introduction.

It was due to have another hearing on July 17 but the date was vacated, with a new referral set for September 25.

Now that has been vacated again with an “update to follow”.

A spokesperson said the date had been vacated again because the parties needed more time to prepare.

The parties are set to convene on October 22 to seek timetabling orders – a hearing date should be determined shortly thereafter, likely for early December.

Tags: FADC

Comments from our readers

Sign In to add your comment