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Ross exempt from ‘most demanding’ AFA standard

David Ross didn’t have to sit what has been described as the most demanding part of the Authorised Financial Adviser qualification requirements because he is a chartered accountant.

Wednesday, December 5th 2012, 6:03AM 26 Comments

by Niko Kloeten

Chartered accountants were given an exemption from Standard Set C of the National Certificate in Financial Services Level  5, which advisers must complete to be eligible to become AFAs.
Standard Set C is the unit standard that focuses on professional practice and it requires advisers to submit a portfolio of evidence to demonstrate their current practice in aspects such as disclosure and documentation.

Chartered accountants were among a number of groups that weren’t required to complete the standard, including Certified Financial Planners, CFA Charterholders and Chartered Life Underwriters.

Code Committee chairman David Ireland said the decision to exempt chartered accountants was made after an “intense discussion” with the New Zealand Institute of Chartered Accountants (NZICA).

“It was decided the combination of requirements chartered accountants had to satisfy was sufficient to reflect Standard Set C.”

However, Ireland noted the relief given to chartered accountant and other groups from the standard was provided under an “eligibility sunset” that is soon to expire: “After the end of this year the relief will no longer apply.”

Diversified director Norman Stacey said Standard Set C is the “most demanding” of the standards advisers have to complete and covered areas Ross appears to have been deficient in.

“It’s the most time-consuming; A, B and D were pretty quickly breezed through but there were no shortcuts with Standard Set C.  It’s not remotely academically challenging but there is the tedium of having to go through the whole financial planning process.

“I think it’s a happy co-incidence the problems to date have been with those who were grandfathered in on the assumption they could do it rather than having to prove it.”

But Angus Dale-Jones, a consultant to the sector and former regulator, said it was unlikely the problems with Ross’s business practices would have been picked up if he’d had to do the standard.

“It’s not the role of Standard Set C to pick that up; it’s an educational standard.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 5 December 2012 at 8:50 am Ally said:
Sounds like the "intense discussion" the Code committee had with the Chartered Accountants amounted to the committee being sucked in. And what about "NZX Members" ? They were also exempt; but how many brokers do you know that could write a financial plan ?
On 5 December 2012 at 9:22 am denis said:
"(Set C)...it’s not remotely academically challenging but there is the tedium of having to go through the whole financial planning process"

I love that quote.

If it's tedious for the adviser, what must the client think?
On 5 December 2012 at 9:46 am Forthright said:
It would be an interesting interview between the FMA and those AFAs (or other professionals) who recommended their clients invest funds with RAM. It beggars belief that no rudimentary research was conducted by these industry morons. Basic inquiry as to status of a prospectus, investment statement, annual report, research report, industry news or views of colleagues was obviously not conducted.

If you are an AFA who recommended RAM, I would expect you have already notified your professional indemnity insurer and resigned your AFA’ship.

I agree with Stacey, set C was a rigorous inquiry into the competence of the candidate, moreover set C required any submitted material to be verified by professional reference from verifiers, who should have been familiar with the candidate and their work. I disagree, with the former regulators comments and seriously doubt whether RAM would have been allowed to attend any AFA passing out parade if he had been subject to set C scrutiny.

Obviously those Advisers who recommended RAM have never read or read and failed to comprehend the FMA Code of Professional Conduct publication.
On 5 December 2012 at 10:48 am brent sheather said:
Gareth called it industry capture but i think he meant the IFA members getting in on the cheap. That's another bomb that's tick tick ticking
On 5 December 2012 at 11:45 am Dorf T Head said:
Another conspiracy theory from the oracle Sheather. It was not a cheap process and unlike you, I did the whole process. Correct me if I am wrong, but I understand IFA members are held to a higher standard than non-IFA members, which should provide a bit more grist for you.
On 5 December 2012 at 11:55 am Paul said:
Oh please Brent stop being so "holier than thou" many of members of the IFA have completed all their studies, provide VERY professional advice and did not get in on the "cheap"!!
On 5 December 2012 at 12:16 pm Stan Walker said:
Brett, David Ross was not a member of the IFA.

On 5 December 2012 at 12:23 pm Mac said:
What action will the FMA be taking to identify other Ross type operations? The answer surely is to conduct immediate audits on those AFAs who are directly investing client funds into the markets. Stock brokers should be the highest priority.
On 5 December 2012 at 12:35 pm Brian Klee said:
How and why he was allowed to give that level of investment advice without the core competency levels is beyond me. This is another huge learning experience for all concerned - the industry, regulators and sadly the public.
On 5 December 2012 at 12:45 pm Amused said:
Agree with Forthright's comment above. If you are an AFA and recommended RAM to your clients then au revoir!
On 5 December 2012 at 1:06 pm Barrington Smythe said:
If we're going to chuck out any AFAs that recommended RAM, I think we also need to chuck out all AFAs that recommended Bridgecorp, Capital & Merchant, MFS, St Laurence, Strategic, Provincial.....that should reduce the numbers down quite nicely I suspect.
On 5 December 2012 at 1:58 pm BoP said:
"It would be an interesting interview between the FMA and those AFAs (or other professionals) who recommended their clients invest funds with RAM."

It would also be interesting to hear from the FMA as to whether any client files they examined during advisor visits included allocations to Ross Asset Management. Perhaps the FMA would care to comment?
On 5 December 2012 at 2:44 pm Independent Observer said:
I don’t know Mr Sheather, nor have we met at any of the industry’s events. So I can only judge him by his comments in the media and on his website.

However, I am aware of many of the industry’s participants who work intelligently towards improving their own knowledge and the financial position of their clients, and have come to the conclusion that Mr Sheather’s myopic view of the industry, and distorted belief in his abilities are indicative of the next issue tick tick ticking
On 5 December 2012 at 3:20 pm brent sheather said:
Right on Barrington Smythe..exactly what I was going to say.I wonder how many AFAs that would leave. By the way it would be nice if we had real names here but for dorfs benefit i did have to do all the exams to become an AFA.
On 5 December 2012 at 3:31 pm Amused said:
Contrary to the barrage of comments we have had this year from so called industry “experts” (many with a personal agenda to push I might add) been an AFA clearly has no bearing whatsoever on whether an adviser is going to act professionally or not when dealing with his/her clients. The RAM saga makes this fact abundantly clear!! If you are going to act dishonestly or unprofessionally then whether you are an AFA, RFA or QFE makes not one iota of difference.

Regulation has accomplished nothing but spawn a plethora of compliance and training companies all looking to make a dollar from adviser businesses.
On 5 December 2012 at 3:58 pm Forthright said:
Barrington also AFAs who recommended Lombard, Nathans, Orange, Fidelity Finance, First Step, Five Star, Dominion, Feltex, Hanover, Geneva, Canterbury Mortgage Trust, ING Diversified Yield & Regular Fund Income Funds, Pike River, Infratil, Origin Energy, Quayside, Nufarm, Credit Agricole, Rabobank and of course South Canterbury Finance.
On 5 December 2012 at 4:02 pm AJS said:
Would completing Set C prevent someone from running a Ponzi scheme? I think we need to look at root causes of behaviour and deal with those issues rather than expect the system to prevent bad apples rotting in our barrel; i.e. why would someone think they would get away with such behaviour for any length of time without detection and why would an AFA recommend such a scheme (albeit unknowingly I hope) without doing reasonable due diligence? I keep coming up with "lack of accountability". Perhaps that's where the FMA should be focusing more of its energy and resources?

PS Why personally attack people who are prepared to ask hard questions and practice what they preach? I think Mr Sheather has done a lot to shed light on important issues for "Mum & Dad" investors and get the industry thinking about how it could better serve clients.
On 5 December 2012 at 4:08 pm Curious said:
Has anyone heard how many AFAs were allocating client funds to Ross?
On 5 December 2012 at 5:22 pm Ally said:
It seems the FMAs latest "blitz" on AFAs is going to be Wellington - well after the horse has bolted.
On 5 December 2012 at 9:12 pm BOP Boy said:
Hey Brent

Can you provide us with an insight into how your client's assets held?

Are they in nominee type arrangements, or an independent custodial arrangements (like a PIP). Is the arrangement audited? Give us a run down on what you are up in terms of this.
On 5 December 2012 at 10:13 pm Old Timer said:
You should also look at the dodgy lawyers, doctors, accountants, builders, plumbers, politicians and priests, in fact every walk of life has its low lifes. Government regulation has never and will never stop them.
On 6 December 2012 at 10:10 am brent sheather said:
Hi bop boy,90% of my clients assets are held by them in their own names so that eliminates platform,custodial fees etc the balance is held in Craigs or JB Weres custodial accounts all of which are audited etc.I have worked with this system since 1984 and it works well on the 650m of client funds we manage with a total of 8 staff. That's why our annual fee structure is less than 20% of the industry average.Rgds Brent
On 6 December 2012 at 10:16 am Bill said:
Starting at the beginning,did RAM have a registered prospectus ?

Secondly we are all fools if we invest our clients money in anything less than a well established organisation that has displayed real integrity and a corporate culture of the highest order.

nb. There are plenty of big organisations that are openly greedy and so fail the "corporate culture test"
On 6 December 2012 at 11:38 am Confused & Frustrated said:
Not using my name due to personal type attacks I constantly see in these blogs (very unprofessional) - shoot the industry and authorities not your fellow advisers.
I completed all sections for AFA status and have done my Massey exams - nothing I repeat nothing would assist anyone as to what minimum info you should get for dd although we would all have our standards, nothing would stop a company such as RAM providing me with the requested dd information and it actually being fraudulent - not that I invested clients funds with any of the finance coys but all their brochures and accounts info looked pretty good and yet it was all fraudulent.
I think the FMA should be auditing all companies that can invest clients money directly including the big Insurers they are not immune from errors etc once they have got them all checked out they should provide a list we still do our dd work but we have at least had the authority tick - the AFA exams, assignments needed to be more practical rather than academic and they should provide the basics of what to do before recommending a product - although everyone who has commented below seem to be perfect none of us are and we all at some time will make unintentional good intentioned mistakes - lets work with the Industry to help sort this out!!
The same issues apply for risk no papers,exams,assignments or courses discussed the basics who and why would you sell an agreed value vs indemenity (as an example) we all have our own personal views but they are just that yet we could all comment on each others decision and no doubt given the above type of comments to the detriment of the original adviser yet they may have thought it was the right decision! It needs to be more grass root stuff rather than academic which doesn't help us or the clients.
On 7 December 2012 at 5:22 pm Andy said:
Surprise, surprise, surprise! There are as yet unheard of pigmy tribes in far out Papua New Guinea that saw this very issue coming. The only things getting bitten by the teeth of the FMA are the hands that feed it.

Confused and Frustrated - I totally agree. Legislation has done NOTHING to protect our clients, or stop bad investment decisions. It has completely missed the mark.

It is about time we all did something positive to make things right for our clients.
On 7 December 2012 at 5:34 pm Lindsay said:
I could be the Pope and the Governor of the Reserve Bank all rolled into one - and if I decide to act dishonestly none of it makes a jot of difference - so the point of all the AFA / RFA - @#@@#@@ all

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