You may have seen recent reports that, in response to complaints received, FMA has stopped a KiwiSaver provider’s unregistered sales rep from engaging in unacceptable sales practices. The rep’s activities raised three concerns.
First, the rep was in breach of the FSP Act for being unregistered.
Second, his actions caused the KiwiSaver provider he represented to be in breach of the Securities Act. This is because of his modus operandi - which included calling out to people, enticing them with a monetary reward to join the Scheme – an unauthorised advertisement under the Securities Act.
Third, he failed to provide a copy of the Scheme’s Investment Statement and so again caused the KiwiSaver provider to breach the Securities Act. His relationship with the KiwiSaver provider was eventually (after a second warning) terminated.
The aspect of this enforcement experience that I want to talk about in the context of the new financial advisers regime is the responsibility of product providers for their distribution channel. Providers have a both a legal and a moral responsibility to protect their customers.
As a minimum we expect all product providers to ensure their advisers are registered (unless they are a QFE in which case they don’t need to) and providing compliant disclosure statements. We expect them to know about the advice practices of those offering their products and to be satisfied that they meet robust care, diligence and skill standards. We expect them to ensure that the Investment Statement is provided and to check for any misleading, deceptive or confusing conduct, including advertising. We expect them to take any complaints seriously and refer serious conduct matters to FMA.
Providers unsure of their legal responsibilities for those acting on their behalf should refer to sections 5I and 20F of the Financial Advisers Act and, if necessary, take legal advice. If they are still unsure of how far their liability extends we would advise they err on the side of prudence.
As responsible corporate citizens they also have a moral responsibility to set a high benchmark for customer protection. Their brand and reputation is at stake. Under the new Financial Markets Authority Act, FMA can issue warning statements including about unacceptable selling and distribution practices being used by distributors of, for example, particular KiwiSaver schemes.
The success of KiwiSaver is crucial to New Zealanders’ confidence to invest. FMA is very focused on ensuring appropriate and compliant advice practices and will act decisively to curtail unacceptable modus operandi by individuals and firms.
Mel Hewitson
Apart from product providers are other groups responsible for their members actions.
For example if an adviser says to his client that he is part of the Newpark Group to give his client confident they are dealing with a national group - are that group then expected to be responsible for that advisers advice.
On 23 June 2011 at 3:47 pm patrick diack said:
you reported that the FMA was cancelling all 4000 applications, i havn't been told that, where did you get that information from? also this raised another matter, a lot of those customers were from huljich, who door knocked on their house, i know they told me. this would be rewarding another provider who acquired there customers illegally.
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Apart from product providers are other groups responsible for their members actions.
For example if an adviser says to his client that he is part of the Newpark Group to give his client confident they are dealing with a national group - are that group then expected to be responsible for that advisers advice.