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Sued adviser tripped up by paperwork

A Waikato advisory firm has been ordered to pay more than $70,000 after a judge ruled an adviser had breached the Fair Trading Act and his duty of care to a client.

Friday, November 11th 2011, 5:51AM 11 Comments

by Niko Kloeten

And according to the ruling by Judge Peter Spiller, the adviser’s lack of paperwork was part of the problem.
Kenneth Gilmour, a retired pharmacist, sued adviser Rodney Hartles and his firm Decisionmakers (Waikato) after his investments in Bridgecorp ($100,000) and Property Finance ($23,000) were hit by the receiverships of both companies in 2007.
Gilmour, who claimed for more than $140,000 (including $25,000 in damages) had been in contact with Hartles since 2000 and during that time also held investments in Strategic Finance and St Laurence. 

However, the nature of their client-adviser relationship was in dispute, according to the judgment by Hamilton District Court Judge Spiller.
Gilmour, who also laid a complaint with the Institute of Financial Advisers (IFA), said he had lost money in Bridgecorp and Property Finance due to negligent advice from Hartles.
But Hartles argued his duty of care was limited in that “to a large extent Gilmour was investing of his own volition, seeking medium-risk investment portfolios, and not really listening to or seeking advice” from him.
He said Gilmour was “reasonably analytical and not poorly informed”, and said that that the first investment made by Gilmour (in Strategic Finance) was made without advice from him.
“Hartles argues that Gilmour’s case is based on hindsight, and that the failure of the two companies in question (and Gilmour’s resultant loss) were due to the global financial crisis at the time,” the judgment said.
The judge noted Hartles had received commission for each of the investments that Gilmour made through Hartles’ office, including the 2003 re-investment of $100,000 in Bridgecorp and the 2006 investments in Property Finance totalling $23,000.
He also said Hartles “appears to have recorded few details of his meetings and discussions with Gilmour, despite the multiple contacts and investments arranged (for which Gilmour obtained commission) over the period 26 June 2000 to 28 November 2006.
“The absence of records taken by Hartles was of concern to the Institute of Financial Advisers Complaints Committee, which upheld Gilmour’s complaint.
“The Committee gave serious consideration to prosecuting Hartles. The Committee said that, if Hartles’ services were solely transactional, this should have been recorded in writing to the client; and, if they were not, there “seems to have been a total non-compliance with practice standards”.”
Judge Spiller ruled that “Hartles’ breach of the Fair Trading Act 1986 caused loss to Gilmour. I am satisfied that Hartles’ breach materially contributed to Gilmour being deprived of the chance of making prudent and appropriate investments.”
He found that liability was with Decisionmakers (Waikato), which he ordered to pay $72,700 to Gilmour.

Niko Kloeten can be contacted at

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Comments from our readers

On 11 November 2011 at 4:14 pm Independent Commentator said:
The directors and management of Bridgecorp are presently being prosecuted for fraud. The Chairman and directors initally claimed they knew nothing about Petricevic and Roest's fraudulent activites. The auditors and trustee have also claimed they knew nothing. Despite this, Hartles has been found 'guilty' by the IFA (and IFA in their wisdom even "gave serious consideration to prosecuting Hartles" themselves). To what extent did the IFA's 'judgement' assist the plaintiff Gilmour (and the judge in making his decision). Do IFA members understand the implications of this (and the additional liability risk they incur via their membership of this industry body?
On 12 November 2011 at 11:09 am Forthright said:
The recent decisions coming from the Courts have the commonalities of;
a. investor out of pocket
b. the investor was completely naïve
c. totally reliant on the soothsayer Adviser
d. industry oracles deeming the investments rubbish
e. Judges agreeing
f. Judges awarding claimants approximately 50% of the investor’s losses.
The spectre is any advisers, brokers, sharebrokers, or commission receivers, who has not followed the 7 step process and also making the mistake of recommending any investment which has suffered a loss during the last 6 years, is now prime bait for the litigators. I am in no doubt, the litigators will be expecting an increased demand for their services. I also imagine over the next 5 years, more than a few advisers, brokers, sharebrokers, or commission receivers will be ticking the calendar off towards important statute of limitation dates, such as, Bridgecorp 3/7/13, St Laurence 29/4/16, Strategic 27/7/16, Lombard 10/4/14 to name a few. I also wonder how many investors will be wondering about Feltex, NZ Farming Systems, or the handful of hybrid debt securities now worth a lot less than the original investment value. I expect the next 5 years will be a bonanza for some and an eternity for others. A few IFA members will probably wonder why they are paying for their societies upkeep, so one day it’s president may be an expert witness against them in court.
On 14 November 2011 at 10:11 pm Malic said:
This case and the previous case of Church set unbelievable precedents for every adviser in New Zealand. Why there isn't a mass outpouring from advisers on this website regarding this news is simply extraordinary and says something about the numbness that pervades thinking in the industry right now. En masse the IFA should be abandoned as a 'professional' organisation. Not only do advisers have to contend with a new disciplinary regime of government sanction but the very organsiation that advisers would normally look to for support and guidance in times of difficulty is on your case too, trivialising on such serious concerns as 'poor paperwork' when it is obvious the complainent had some idea about what he was doing in the first place. As has been pointed out, tell me just HOW can an adviser be judged as guilty when before the courts right this very moment is the case that should have been brought by authorities years ago against the company directors who we are now told not only lied themselves about the state of Bridgecorps accounts but instructed their staff to constantly lie on their behalf for months previously too; falsified company information, records and accounts; acted deviously; misled the public and in general were fraudulent in all their dealings, one having already pleaded guilty to the charges. Yet we have the IFA, the body funded by professional advisers taking a case against one of their own - without this final judicial decision being known - it is still before the courts. This is extreme madness. How can the judge in this Hartles case be so pitiful that he makes a ruling when this is still before the courts and reasonable blame for the debacle appears to be attributed rightfully to these few men only? Why is any adviser to blame for not picking up that they were lied too, misled themselves and conned? Magicians or clairvoyants we all are not. If this is the way of the future I suggest there is no business left to be had as a financial adviser for something like this will occur again in the future, with new investment proposals but without the experience for the event that unfolds. ALL barrells are pointing at the adviser to be able to 'see' all events, decipher all misleading statements but become responsible for all errors when making recommendations.
In regard the Church case, due to her settlement of the issue, the judges (lack of) ruling about acceptable research standards has left advisers in another no-win situation. The FMA require of advisers an obligation to back up advice with research or opinion from third parties - fair enough. Yet the research provided by Church was disregarded by the judge because of the opinion of another adviser (an expert witness) opinioning that it was 'inferior' research even if it went to some 25 -30 pages in discussion length including a 'scrutiny' of the Bridgecorp accounts and offering a professional opinion on such. The expert witness provided no evidence himself as to a superior alternative apart from this opinion (from memory a 'sniff test') or guidance as to exactly how he would go about the analysis of a finance company balance sheet, in this case Bridgecorp - or any other finance company offering securities at that time. The judges inept decision in this case opens up the whole issue of what is 'reputable' and what is not, remembering this was a professional organsiation that provided the 'research' used by Church. Surely some is better than none, superior to a general feeling or mere opinion (sniff test) but this case outcome has done the whole industry a dreadful mis-service as to what is acceptable due- diligence and what is not. Perhaps the suggestion is that S&P is the only organisation that gets it right... Once more, the case has left advisers weakened and vulnerable. Plainly inept judicial decisions applying todays thinking to yesterdays situations or not even grasping the issues leaves advisers staring right down loaded barrells.
On 14 November 2011 at 10:17 pm Matt Y said:
I would have thought the most pertinent point would be how much of the overall clients assets were invested in these 'dogs?

I think its a little naive to say that any poorly performing investment will be subject to litigation as Forthright suggests.

On 15 November 2011 at 9:51 am Bob said:
This is why I wouldn't put a customer in an investment I didn't think was any good i.e. Bridgecorp. The expected return was never high enough for the risk taken. No sympathy whatsoever for the Adviser. If you wouldn't advise it yourself, don't do the transaction.
On 17 November 2011 at 10:10 pm Michael Donovan said:
Well 4 out of 5 is not too bad??
Bob is apparently the only adviser of the above 5 who had the unique crystal ball to be the only one to have seen the extent of the GFC...!!!?

A main reason the NZ finance companies existed is because of the huge void left in the funding (banking investment) industry due to the fact that it is (still) made virtually prohibitive to obtain a banking licence in NZ...! Fact.

Most of the finance companies therefore, subsequently filled that void in two parts...enjoyed immensely for decades (since NZ deregulation in the mid 1980's) by investors and borrowers alike..!

Investors such as Mr Gilmour were probably spending their retired years at "the club" bragging to their mates how great it was to be receiving x3 times the returns from their finance coy investments than their "dumb" mates who left their petty-return bank term- deposits in place.!
That was that thing called "greed" (& associated gloat).

There is not one single NZ property developer (which includes thousands of mums and dads) who can look back and be honest to say they did not do well from borrowing well into double-digit interest rate charges from all the various finance companies.
They borrowed their deposits to invest into a rental a few thousand more to buy a new boat and Fiji holiday...because for at least a couple of decades they just could never values went up monthly...just like magic, and they/we were all lulled into a belief that it could never really stop (only falter for a short cyclical spell and then power up again).

AND...the same general public investors joined into the capitalist clan by tossing a few thousand dollars into the likes of Wall Street..!

NOW...there are a world-wide bunch of them camping out in comfortable real-world cities (built from the successes of capitalism),complaining about the Wall Street financiers who made literally billions of dollars of wealth for these protestors in the preceding decades of good times.!!!!

Obviously, we know that with the luxury of hindsight, the likes of Mr Gilmour can try and over-ride his originally happy days as a result of his 'greed' and "pass the monkey" of blame onto someone else...someone who is still not yet retired from a sincere and educated career as an adviser, and who was supposedly doing his best to provide some advisory assistance for a remuneration probably way less than the equivalent fees charged by the chemist?

After all, there must have been some comforting reason for Mr Gilmour to have engaged Mr Hartles as an adviser who surely must have been seen to be able to offer at least some additional benefits to the self-knowledge of himself as investor, probably it would appear with some degree of strong views on where he wanted to re-invest his previously greatly profitable investment?

Rather than this stupid outcome reflecting negatively against Rodney it more likely that the negative reflection may be more against retired chemists...or should it be simply a more broad spectrum definition....just greedy, investors??
Those who are only too happy to whip into their adviser's office and virtually demand to get their few thousand dollars into a double-digit returning finance co, so they can continue down to the 'club' to brag to their dumb mates over a G&T as to how clever they are/were? wrote that you wouldn't put a customer into an investment you didn't think was any good, like Bridgecorp..!
Hey, you can't put any money into Bridgecorp now...crikey.!

Everyone was well aware that the deposit into ANY finance company was risky, because there was no direct security provided (over the asset the finance company on-lent the investors money), and that was what the double-digit return was a supposed compensation for.

One cannot help but see all these recent references of terrific forward knowledge as being the foundation of sayings such as "closing the gate AFTER the horse has bolted..?"

I see no mention here of the fact that Mr Gilmour (like many other intelligent people) lost far more in his other "clever" investment which involved more like the other 80% of his investments (nothing to do with advice from Rodney Hartles).....his (Mr Gilmour's) property, which he no doubt still owns, and which on the books shows a loss of 20% or 30% on average?
Are we going to see him file a law suit against the real estate agent who got him into the property??

And no...he cannot sue himself for that one..!

How glad I saw the writing on the wall well over a decade ago, when my hugely successful financial-planning practice was sold.... who would want to be a financial planner now? Michael D.
On 18 November 2011 at 8:56 am Rodney Hartles said:
Yesterday I and another couple of IFA members gave a talk to about 20 advisers at an IFA meeting in Hamilton. The aim was to share our experiences with our colleagues over how we were treated by the judicial system and to provide advice on how not to fall into the same trap as we did. I am an active member of our local branch and I fully support the IFA both locally and nationally. I have absolutely no issues with the IFA over how I was treated over this situation. They reacted responsibly to a complaint by an investor and found that I came up short to how a financial adviser should operate. While I would argue their were extenuating circumstances at the end of the day with the information they had they made their decision. I accepted that decision and have moved on. To make out that the IFA in some way hung me out to dry is wrong. They acted just as you would expect a professional association would and I fully support them to keep doing what they are are doing. I have always been a member of the Association ever since I took up being a financial adviser after a career as an Accountant 18 years ago and I know I will remain a member to the end of my career.
On 19 November 2011 at 10:57 am Michael Donovan said:
Hmmmm....I wrote my previous comment with the assumption that you Rodney are the same Rodney I met a few years ago as you entered financial planning?
If so, I shall add this comment as if you are the same Rodney, and I must say I recall you as being a nicely and appropriately conservative and sincere adviser, much in line with what one would expect of an accountant?

One of your points I read in your comment grabbed my attention..."how not to fall into the same trap as we did"....

You may recall me suggesting to those being trained as advisers that even though trainees made the assumption they were financiers, I endeavoured to clarify that you would more accurately be described as being in psychology (NOT pyschologists), and therefore that is a reason why I picked up on the above line from your comment (& of course I was not privvy to the content of your meeting)...and why as follows;

What would have been the "trap" you referred to?

One of my main points was that I found in most walks of life, there is a unique human tendency for one to blame another for one's failings (or predicament/s), and subsequently, (without the benefit of the "full monty" re Mr Gilmour's situation) I saw his actions (reactions) as being a typical case of that 'phenomenon.'

All the investors who enjoyed their own personal form of 'brags' about their terrific returns they were 'enjoying' from their finance company investments (compared to their dumb mates who stayed in boring low-return bank deposits)have ended as mostly seeming to be the "Mr Gilmours" who now choose to blame the advisers for allowing their greed to take precedence over logic?

I would find it most interesting to know more of the "monty" with this one.

And maybe it is just a simple case where an adviser chooses to stay 'pals' with the very body who was supposed to help him...only those who know the full 'monty' would be expected to know the full answer?

I have to ask,two main things in this column:
a)...if any convicted adviser paid the fine in two different options * From professional indemnity insurance..or * from his own pocket, would it be more easily accepted by the relevant adviser if paid from option one, than from option two?
b) Who is actually reading these comments and are there any views (comments) likely from others in the profession (noting that I have been out of it for more than a decade after many hugely successful years?

Lastly...just as a matter of interest, (and also noting the fact that "no-one" can get it right all the time...except those with proverbial 'big noses'), I had zero investors in any of those failed finance companies such as Bridgecorp and Blue Chip and so on, and I even made sincere efforts to get as many old investors out of the old Money Managers First Step Finance company before it bombed out owing what has been reported as losses higher than $400 million of poor investors money.
What ever has happened to those who were part of the action group who were pursuing that big one? Michael D
On 21 November 2011 at 2:26 pm Michael Donovan said:
Just half a dozen comments on what is a rather serious matter (with more potential precedents) from what I assume are to be maybe hundreds of financial advisers out there?

Or...are there not hundreds?
Surely more than six though??

I shall watch this column with interest, and attach real name.
Michael Donovan
On 21 November 2011 at 4:28 pm Philip said:
While there are not too many comments Michael this is one of the most widely read stories on the site this year.
Indeed it sits within our top 20 which is pretty impressive considering the number of stories Good Returns has published this year.
On 23 November 2011 at 9:17 am Michael Donovan said:
Thank you for your points Philip.

Great to read your statement that this is one of the top bracket of stories this year.

The main point I was making was that I just wondered why there were not (relatively) many comments made by advisers.
No slur on the site intended from me.

To all...I am now no longer active as a financial planner after the sale of my hugely successful Money Managers franchise way back in 2001, which many have suggested was good timing?

I do retain ownership of the branding and names and logos of Money Managers, for what it may be worth.
I meantime wish to remain active (via very top sites such as Good Returns)in at least "offering my views" on topics which catch my interest, and I sincerely do hope that my comments are of some form of value to readers...particularly those who are still active as financial planners.

Today's scene is a quite difficult one (compared to the couple of decades I enjoyed actively in the profession) and I do hope that my comments help to keep you all thinking and supporting each other as the attempts at "regulation" are growing force.

Reading back, I would still ask the same questions surrounding this case regarding Rodney Hartles, because it rings a little similar to that of the "Church" case.
I also endeavoured to attempt to question the merits behind the investor-clients (such as Mr Gilmour) who many have said has been an example of one who for so many "fruitful" years would have no doubt enjoyed and gloated about his terrific investment (& additions and rollovers) into the likes of Bridgecorp, yet when the world decided to put huge brakes on it all, he decides to "pass the monkey" of blame onto an adviser.

The adviser in this case only had a (regulated) prospectus to work from, and the merits of that prospectus is actually still in the hands of the NZ High Courts to decide that is partly why I decided to suggest the "pass the monkey" facet to this matter.

Also, to try and keep "alive" those issues which may be even more real in regard to clients losses of money in the likes of Blue Chip and First Step...many of which seem to have quietly slipped into oblivion...overtaken by newer ones such as Church...and Rodney Hartles/Gilmour?

And...further, to invite and encourage other advisers to forward their opinions and views via this great column facility.

I do however realise that there is likely an element of advisers wanting to be careful about making their true feelings printed as comments, which must be frustrating?

Keep up your good work Philip...and I shall endeavour to keep up mine.
I still have my T shirt with "Everyone's entitled to my opinion."!
Michael Donovan
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