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Advisers in the gun over Ross investments

The fallout from the failure of Ross Asset Management (RAM) looks set to extend to financial advisers who recommended their clients invest in the firm.

Thursday, December 6th 2012, 6:31AM 11 Comments

The Financial Markets Authority has confirmed it is investigating an unspecified number of advisers in relation to the company, which was run by Authorised Financial Adviser David Ross.

“FMA is aware that a small number of clients invested with Ross Asset Management on the basis of a recommendation by another financial adviser,” an FMA spokesman said.

“We are actively engaging with those advisers and will take appropriate action where, after investigation, any breaches are discovered.”
Investor spokesman Bruce Tichbon said he had been contacted by investors who said they were recommended to David Ross by “high-profile financial advisers around the country”.

Tichbon declined to name any of the advisers but said he’d heard “large names to small names” in conversations with investors.

“The people who’ve been particularly motivated to ring me have been those that were recommended by a financial adviser or those who put a large amount of money in at the end.”

Corporate lawyer and fund manager Brian Henry, who represented Carey Church in the Armitage v Church case, said the situation was “looking very ugly” for financial advisers.

He predicted lawsuits similar to those that followed the finance company collapse, but he said advisers who recommended Ross would have an even harder time defending themselves.

“The obligation of the investment adviser is quite clear in case law: they must become familiar with and understand the investment they are advising on.   They look at published accounts, audited reports, trustee action, reaction or non-action, the prospectus and investment statement.

“These are the base documents when they start looking; they still have to use their brains, smarts and common sense on top of this statutory base.  With this guy they have no statutory base to start from.”

And Henry said affected advisers might not even be covered by their professional indemnity policies.

“They will not cover those advisers if the loss has been caused by diminution of value of the asset and not by negligence.  If they can say the asset was absolutely stolen and was total theft they might be able to get a pay-out.”

« Ross exempt from ‘most demanding’ AFA standardFund managers call for level playing field »

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Comments from our readers

On 6 December 2012 at 9:01 am Ally said:
AFAs who recommended David Ross did exactly that: recommended a person. They did not recommend a "financial product" (Ross was not managing a fund, rather indiviudal accounts). So it is no different from someone recommending a lawyer, accountant or builder. It is up to that person to do their own checks on the service to be offered. So the FMA is unlikely to get anywhere with their witch hunt.
On 6 December 2012 at 9:05 am Fred said:
Surely there was negligence on the part of lawyers, accountants or other financial advisors who recommended RAM with a somewhat inadequate 'look at published accounts, audited reports, trustee action, the prospectus and investment statement'?

On 6 December 2012 at 9:39 am Forthright said:
An AFA who recommended RAM to a client is held to a higher standard than the person at the Pub who may have recommended RAM, or for that matter, a lawyer, accountant or builder. The only code standard not broken by AFAs recommending RAM is probably section F of the code. If you are an AFA and know the code you might know this already. If you are an AFA and don’t know, then I suggest you hand in your AFA’ship immediately.
On 6 December 2012 at 10:20 am John Milner said:
Ally, it would be the responsibility of the adviser to ensure they were satisfied that David Ross was an appropriate person to recommend. It would be assumed by the client that the adviser, who at a minimum is an AFA, would not recommend someone unless they had completed some DD themselves. This should go for any person who promotes themselves as a professional. But yes the client must accept some responsibility.
On 6 December 2012 at 10:45 am Paranormal said:
@Ally, those advisers that 'recommended a person' can still be held accountable for that recommendation. A number of advisers have discovered that to their cost.

Similarly Henry may be incorrect in the statement regarding theft. The diminution of value exclusion may still be applied by the insurer, regardless of the reason for the diminution.
On 6 December 2012 at 12:33 pm Old Timer said:
Why would any AFA recommend another AFA?, especially when they live in the same town? Does Countdown recommend New World, does Placemakers recommend Mitre 10? Does Spicers recommend NZFP? Deals within deals maybe? just speculating.
Also, what if these "referrals" were pre regulation?
So many questions and too little information.
Again, not a happy situation for our industry. We are once again, all tarnished and no amount of playing the "my operation is safer for the client, than yours" game, is going to help anyone except giving some a short burst of "egoism" on this site.
On 6 December 2012 at 2:27 pm John Berry said:
Old Timer, I like your point that the "my operation is safer than yours" argument doesn't help things. The debate over whether Ross was a fund manager or a financial adviser is in the same boat.
The reality is that this disaster hurts the entire wider industry. It's not only financial advisers who don't have an independent custodian. It hurts ALL financial advisers and all fund managers. Every participant needs to critically look at their risk management and investor protections. Confidence has been eroded (again).
On 6 December 2012 at 11:42 pm patrick diack said:
I signed up Kiwisaver by giving people $10.00 outside Winz, if this Ross character can become an AFA maybe I could become one as well?
On 7 December 2012 at 10:38 am Stan Walker said:
Patrick, you were involved in a low level ethically dubious practice that cost no one anything. That is why the FMA is all over you. To fly under their radar you have to ramp up your operation into a 450 -1.5 billion ponzi type scheme.
On 8 December 2012 at 7:33 am Independent Observer said:
Whilst I'm aware the the bulk of investments into Ross were direct (ie: without any external advice), I'm also aware of a number of AFAs who placed significant exposures into Ross without any independent research or opinions.

The sooner that the industry rids itself of these folks (you know the ones - who reckon that they're above any research or appraisals before placing investments) the sooner the industry can regain the confidence of the investors. Until then (as pointed out by John), we're all tarred with the same brush
On 18 December 2012 at 8:18 am Amused & ANON said:
As amusing as your comment is Stan, the irony is brilliant. Do you think the FMA will get it?
Off to the proctologist for you Stan!

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