Suppression, supervision for Adviser X

No financial penalty will be imposed on an adviser who admitted breaches of code standards eight, nine and 12, the Financial Advisers Disciplinary Committee has ruled.

Friday, May 30th 2014, 4:00PM 10 Comments

Instead, he will be subject to a supervision plan he has agreed to by the Financial Markets Authority.

The authorised financial adviser appeared before the FADC yesterday and their judgement was released this afternoon.

Both the adviser’s name, and that of the QFE he worked for, have been suppressed.

The offending related to the adviser’s failure to keep the required records.  No clients had complained and there was no identified loss for any client, the FADC said.

The committee said the adviser had already suffered a financial penalty as a result of his QFE’s complaint.

“As a result of the complaint by the QFE, the QFE terminated its relationship with the AFA. This appears to have caused the loss of an anticipated opportunity for the AFA to sell the adviser business to the QFE. It was said to be worth in excess of $200,000. In addition, because of the termination the AFA has not been in employment for a period approaching nine months.”

The committee said the importance of proper record keeping could not be minimised because of the influence it could have in determining whether an AFA had an up-to-date understanding of a client’s financial situations, needs, goals and risk tolerance.

“These factors are vital to determining what steps an AFA has taken to ensure that financial services provided to a client are suitable for that client.”

The FMA’s legal counsel had suggested that in addition to the supervision plan, the adviser be fined $1000 for each admitted breach of the code.

But the FADC said it was not convinced that there was merit in an additional penalty. “The AFA has been thoroughly co-operative in the investigation and in accepting the proposed supervision. In light of all the relevant factors, we are not convinced there is efficacy in imposing any additional penalty. It would be only tokenism and is not required.”

Despite the suppression orders, the adviser will have to make the breaches clear in his PDS statements for the next five years.

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Comments from our readers

On 4 June 2014 at 11:47 am Chatterbox said:
A code of standards is not the law. Go to court and complain the standards are breached and the Judge will assert any code is not law. A breach of a code is not a breach of the law. Forget any lawyers helping to define a breach therefore. There is no protection for consumers in NZ law.
On 5 June 2014 at 8:59 am brent sheather said:
That's a good point. The code is not the law.

When I did first year law we were told that it wasn't critical that the law was correct but it was critical that it was consistent. In that context the fadc decision looks deficient.
On 5 June 2014 at 10:22 am Murray Weatherston said:
Contrary to views expressed above
1. Code is provided for in the law Financial Advisers Act [FAA]
2.AFAs by law have to comply with the Code
3. Breaches of the Code are offences in terms of FAA; FADC is the tribunal.
4. FADC is involved in discipline of the AFA (not providing restitution nor any other benefit to the client)
FADC can cancel or suspend authorisation, censure, order supervision or training, fine up to $10K and award costs.

This latest case isn't all that helpful in terms of precedent. The specific facts of the case are not known - which bits of paper did X not have on his files?

FMA and X agreed what breaches would be found, and the supervision penalty.(on the US criminal and civil legal TV programmes I watch I think this would be called plea bargain)

FADC role was very limited (evidenced by the fact they released the written decision the day after the hearing) to very few things, which I suggest were
1. rubber stamping the FMA - X agreement
2. deciding whether or not to add a fine as a further penalty (decided No); and
3. deciding whether X and QFEs names should remain suppressed (decided yes).

On 5 June 2014 at 10:58 am bush lawyer said:
Can anyone point me to the empowering law that gives the FADC the legal power to make a "suppression" order against anyone? Including the QFE or Adviser concerned? A quick look at the FAA tells me any such "order" may be "ultra vires" the FADC's empowering legislation. Perhaps you know Gavin!
On 5 June 2014 at 11:45 am Murray Weatherston said:
To Bush Lawyer

Rule 31 (2) of the Procedure Rules under the Financial Advisers Act 2008, which is available on under the Publications tab.
On 5 June 2014 at 12:29 pm Bush Lawyer said:
The FAA gives the FADC the power to create it's own rules around procedure, not as I see it, to create substantive legal power for itself to make orders against anyone that are not provided for in the FAA.

The FADC can prevent publication of details by itself and maybe the FMA but again I ask: what LAW empowers them to make a "suppression order" against either QFE, Adviser or anyone else? Any attempt to do so in its rules without the clear legal right would I suggest be beyond the FADC's powers.
On 5 June 2014 at 2:40 pm Gavin Austin ABCompliance said:
To Bush Lawyer

Sec 106 (5) of the FA Act 2008 gives the committee the power to regulate its own procedure. Rule 31 of its procedures gives it the right to issue suppression orders if it agrees that there are extenuating circumstances. I am sure the Chair of the FADC Hon. Sir Bruce Robertson (Chairperson)knows his way around the law as he was appointed a High Court Judge in 1987, was President of the Law Commission from 2001 to 2005 and then sat on the Court of Appeal until he retired in 2010.
On 6 June 2014 at 11:20 am Bush Lawyer said:
To Gavin
I'd like to think you are right Gavin, I'd be very disappointed if the FADC acted beyond its powers. Unfortunately though lawyers don't always get it right, that's why we have an appeals process.

My question has still not been answered though. The FADC only has the powers granted to it by the Financial Advisers Act and may only make the orders set out in S101 of that Act.

The FAA does allow the FADC to create it's own procedural rules but this does not extend to creating legal powers it does not have.

The FAA (S101(6)) allows the FADC to "publically notify the action in any way that it thinks fit." This means it can chose to make public or not any proceedings, it does not give the power to bar any other person from divulging any details.

Rule 31 says the FADC can "direct non-publication" if exceptional circumstances exist. Who this "direction" can be enforced against is the question.

Possibly it is only the fADC, its staff and perhaps the FMA.

I do not believe rule 31 can be interpreted to apply to the whole world. Can it apply to the parties to the complaint?

I'd suggest no, because the powers to make orders against the adviser are set out in the FAA and do not include "suppression".

All I want is a proper legal authority for the FADC's right to order "suppression" and maybe an explanation of what the FADC considers would be "exceptional circumstances".
On 6 June 2014 at 1:05 pm Gavin Austin ABCompliance said:
Bush Lawyer
Again I can only rely on the ruling as it stands. If they the FADC have exceeded their authority then I am sure FMA and any other interested party could appeal. Until then I would conclude that the order is valid and enforceable. It would be a brave person who blatantly ignored the order. As to your last point I would suggest you write to the FADC as it is not my place to respond. Good luck.
On 6 June 2014 at 3:09 pm Murray Weatherston said:
To Bush lawyer

Thanks for the elucidation of your question. I now see your point clearly (but hasten to add I have no clue as to the answer).

You don't think that there can be any legal bar on someone taking the bull by the horns and publishing that "the advisers name is XYZ and the QFE he used to work for is PQR."

One way to test that proposition would be to so publish and then see what happens.....but who would take that risk?

There is no public (client) complainant in the present case. Informant was the QFE and the FMA, and probably the clients whose files led to the charges probably have no idea that they were involved.

I don't think you are going to get an answer to your question from the mere financial advisers who inhabit Phil's blog. Its a legal issue best answered by those with legal training.

But I would agree its an interesting question

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