Three lessons for advisers from FADC case

• Tweet

Financial advisers can take three crucial lessons from the recent FADC case.

Thursday, February 11th 2021, 6:51AM 2 Comments

Chapman Tripp partner Tim Williams says there are some key lessons in how to operate an advice business following the latest decision from the Financial Advisers Disciplinary Committee.

“The first lesson is that the world has changed. Now advisers need to be able to demonstrate compliance through records, rather than just comply. A lot of the cases have illustrated that people have been successfully prosecuted, whether or not they comply in other respects, but a failure to keep records is a liability in and of itself.

“The key message here is to recognise that you need to be keeping good records that demonstrate to the FMA that you are being compliant.”

After the importance of record keeping, Williams believes the second lesson that advisers can take from the recent FADC cases, is how important it is for advisers to have a knowledge of the law.

“The law is changing, requirements and expectations are changing and people need to be on top of this otherwise they risk being convicted. In this area it's important that advisers don’t assert views, but are making sure they are in line with common understanding. Some of these cases have revealed that advisers have misunderstood the law, even if they feel like they have validly held views they may turn out to be unconventional.”

Williams’ third piece of advice is more subtle, but possibly the most important for any advisers who find themselves at odds with the regulator.

“When dealing with the FMA, knowing how to respond and responding in a way that is non-confrontational, recognising that the FMA has a job to do and knowing how to demonstrate that you are doing a good job is crucial. This is quite a discrete thing to be wary of. You can do all the other things well, but if you are appearing resistant you may get a response that is unfavourable.

“Being alert to the dynamic of dealing with the FMA, is the last step of the learnings that I think advisers can take from the FADC hearings.”

Williams believes that with the upcoming licensing changes advisers could be seeing a lot more of the FADC, telling Good Returns that he believes we will see a rise in case numbers post-March 15.

Advisers thinking that a transitional licence is enough to avoid the ire of the FADC have their work cut out for them.

“The key point is that getting a transitional licence is only the very first step. The transformation of getting good policy systems and controls is an imperative to ensure compliance.”

But overall, Williams says that “For the industry as a whole, it is good to have an organisation enforcing the requirements that understands the practical experience of giving financial advice. That knows and understands the risks around giving advice but also understands the law and what is being sought to achieve.

“The FADC creates an incentive for compliance that may not be there without it.”

Tags: Chapman Tripp FADC

Comments from our readers

Sign In to add your comment