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Potential AFAs should be mentored: Tate

A mentoring programme for new financial advisers could avoid meltdowns like the Ross Asset Management collapse, says IFA president Nigel Tate.

Wednesday, June 19th 2013, 7:03AM 11 Comments

by Susan Edmunds

David Ross was last week charged with false accounting and theft by a person in a special relationship.

Tate said those who had pointed the finger at the Financial Markets Authority for authorising Ross as a financial adviser were misinformed because the FMA has few powers to object to an application.

Applicants for authorised financial adviser status must provide proof of competence by completing standard sets b and c, must pass a police check, supply an adviser business statement and two references.

If they satisfy the criteria, the FMA is required to authorise them.

Tate said: “There’s very little the FMA can do. They can’t say ‘we don’t like the look of you’ unless there’s evidence.”

After the Ross collapse, FMA boss Sean Hughes told Commerce Minister Craig Foss that the criteria for entry to AFA status should be tighter. He suggested applicants should have to pass a “fit and proper person” test.

Tate said it should go a step further. “I think it’s really difficult the first time round to get things right. But I’d like to see them have greater capacity to go through and check these people are up to speed before they authorise them.”

He said there were problems in the Set Standards B and C assessments. “Assessment may need to be done on a close relationship basis, with some sort of mentoring. Maybe before they become an AFA, they have to go through some period of supervision. That’s the only thing I can see at this stage that could have avoided the Ross Asset Management situation.”

Tate said it was even easier for Ross to get AFA status because he was an accountant. Accountants have a carve out that means they do not have to do standard set c. “That’s a mistake but that’s not the FMA, that’s the legislation that’s been put in place. I don’t think because someone is an accountant they know about financial advice.”

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Comments from our readers

On 19 June 2013 at 8:24 am Fred said:
An astonishing faith in Regulator. If they had such ability they would be an unlimited blessing. Sadly, no system, rules, laws or supervision can prevent determined fraud.
All the Finance Company rorts were regulated issuers - as was Madoff etc.
On 19 June 2013 at 9:03 am brent sheather said:
Agree that just because someone is an accountant that they necessarily know about financial advice but equally its true that just cause someone is a financial adviser they don't necessarily know much either..especially as regards best practice. Having existing AFAs mentoring new AFAs might just perpetuate current issues. We need an independent body training people..a body with no influence from the industry and one that is aware of what best practice looks like.and that probably rules out Massey in its present form but I'd like to see their work in more detail.
On 19 June 2013 at 9:52 am Ally said:
Either Mr Tate has been misquoted or he is displaying a remarkable lack of knowledge about the AFA authorisation process.

Accountants have a "carve out" re Standard Set C (not B).

And in the Ross case this proved crucial.

It is very unlikely he would have got thru SSC; any competent assessor would have queried him on his custodial arrangements and many other matters.

And until these matters were settled, he would not have been authorised and therefore unable to continue operating.

The fault lies with the Code Committee: we have yet to hear why they granted an exemption from SSC to accountants. Did they just succumb to lobbying from the accountants society ?
On 19 June 2013 at 11:11 am R1 said:
I have not heard that the Ross case was due to a lack of professional competence but rather dishonesty. I completed the full AFA qualification and it wasn't anything like difficult, in fact it was lightweight.

An accountant who runs a Ponzi scheme (allegedly) will surely be able to complete the full AFA requirements if required and continue to run their Ponzi scheme until it collapses and they get caught along with all their clients.

I suggest regular auditing of systems and records for compliance to best practice standards would make it a lot more difficult for such a scheme to survive for any length of time. Audits are done on people who handle our food & make our pharmaceuticals to protect our physical health and it would make sense to apply a similar approach when protecting people's financial health; we are talking about life savings here. Making audits random could help keep the costs down while the deterence factor is maintained.
On 19 June 2013 at 12:13 pm Dirty Harry said:
The whole thing with accountants really grinds my gears. Yes Ross was one, and I won't say they are all like him (they're not). But just see what their party line is: See what the NZICA has to say here.
http://www.nzica.com/For-the-public/Why-use-a-Chartered-Accountant/Investment-and-financial-advice.aspx

Then follow the link to find an accountant/investment adviser in your area. BUT; how many on that list will be AFAs? From the public practitioners list of people in my area, none of the first dozen were on FSPR, and none of the first 6 companies

At what point are they crossing the line from "incidental" advice? That page looks to me like it has left incidental advice miles behind and anyone can wander in to the local CA and get full blown personalised investment and financial advice.
On 19 June 2013 at 12:19 pm w k said:
@nigel tate: the idea of mentoring has been suggested to Simon Power who was the Minister in charge then. It's in the bin.

@brent sheather: agreed (Massey). for the financial planning course to be meaningful, all the tutors/lecturers must be practitioners (retired or not), NOT academics, otherwise it will be a waste of time and money. only practitioners can pass on their experience and working knowledge to aspiring fp, academics don't have the experience or working knowledge - what looks good in theory may be work in practice. for that reason, we see a lot of "advice" from "experts/consultants" do not work at all.
On 19 June 2013 at 12:36 pm Ross said:
That is all very well but mentoring does not eliminate dishonesty. Adding to the compliance load (and costs) for advisers will not address the issue.
On 19 June 2013 at 12:52 pm Concerned Stakeholder said:
I really do wish people like Nigel Tate would get their facts right before going into the media.

Accountants were exempt from standard set C Nigel not B.

Everyone had to pass set B to become an AFA.

As for having more robust checking at AFA application time I would suggest you think back to the lead up until 01/04/2011 which was the cut off to be registered and then to 01/07/2011 which was the cut off to be AFA if you wanted to continue in business.

There was an uproar about all the exams and tests. If it had been tougher to get over the line then (a) it would have taken longer and (b) more expensive.

Let's focus on the way forward and have more debate about what is "best practice" and how industry participants can contribute to that. Lifting the bar to a higher level will require resources - human and financial.

The FMA can't do it all so the industry ie providers, corporate groups and individuals need to participate.
On 19 June 2013 at 3:08 pm AFA Muggins said:
There is another aspect here that is invariably overlooked;

A certain percentage of the population generally is, well, dishonest. And they come from all walks of life.

It doesn't matter how much regulation there is - if a crook is in the mix, a crook will ignore the regulations. More regulation in an attempt to remove the crook comes at a high price for the rest of the honest population in any group.

On 20 June 2013 at 9:36 pm Independent Observer said:
To suggest a mentoring program indicates that many of the industry-aged possess abilities that should be transferred to the next generation… when in fact many will simply pass on their bad habits and misinformation.

The FMAs suggestion of a fit & proper person test is relevant, and has a good case history in other jurisdictions… albeit that it should be reapplied for on an annual basis.
On 21 June 2013 at 12:00 pm Giles Thorman said:
For the IFA or Nigel Tate to suggest that mentoring will stop the likes of the Ross Asset Management debacle is naive in the extreme.

For the FMA to say neither RAM or the Finance Companies has anything to do with them is ridiculous. They should be lobbying to get some power to stop this from ever happening again.

This happened in the UK in the 80's when I worked in the Industry there. It was stopped by making anyone collecting money from the general public have audited trust accounts and audited investments. Yes this is an additional cost; but a whole lot cheaper than the whole lot being lost in a scam or due to rank incompetence.

Instead what we now have is the FMA sabre rattling at every opportunity at AFAs and RFAs who may NEVER have access to any clients funds, but it means they can assure the public they are making the nasty Insurance individuals accountable. Yeah Right!

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