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QROPS adviser breached code: FADC

An unnamed pension transfer adviser has been found to have breached code standards, although none of his clients complained about him.

Thursday, June 22nd 2017, 11:45AM 8 Comments

by Susan Edmunds

In a decision released today, the Financial Advisers Disciplinary Committee said the unnamed financial adviser was an AFA whose work focused on pension transfers from the UK.

The FMA's complaint related to four client files, for people who had engaged him to provide services related to moving their money to New Zealand.

The UK pension transfers had a "UK end" and a "New Zealand end" the FMA said, and the adviser's code obligations applied at each. But the adviser argued the UK end did not fall within his scope of service. The FADC backed him on that point.

The FMA claimed the adviser's primary and secondary disclosure documents, scope of engagement and statement of advice were inconsistent and unclear in recording what he was to do, were not always provided in a timely way, or at all, failed to show an analysis of whether the clients should transfer their pensions to New Zealand, and contained advice in relation to the New Zealand end of the transfer that was the same for each client.

The adviser's lawyer argued that the absence of written evidence of compliance was not the same thing as non-compliance. But the adviser admitted that he had breached the requirement to keep adequate written information about his service.

The FMA also said the fee he received, 5% of the value of the pension fund transferred, created a conflict of interest. The FADC said it was preferable that "more not less" information was given about potential conflicts but the code required management of the conflict as a minimum standard. "The minimum expectation for such management is full and open disclosure, which occurred."

It said he was not competent to provide the service he was offering. The FADC said it had insufficient evidence to come to that conclusion but agreed that the adviser's reporting to clients was not done in a timely fashion.

None of the clients complained about the adviser's service.

The adviser was found to have breached code standard six – behaving professionally - and 12 – keeping information about personalised services for retail clients - in relation to a pension transfer service and insurance advice.

A complaint was referred to the FADC on November 30 last year, alleging the adviser had breached code standards one, two, three, five, six, seven, eight, nine and 12.

That covers putting clients first, not bringing the industry into disrepute, using the term “independent”, conflicts of interest, behaving professionally, agreeing the scope and nature of the service, suitability of advice and record-keeping.

It was decided in December that a hearing was necessary.

Name suppression has been granted until a decision is made on the penalties that may be applied.

Unlike the handful of previous cases heard by the FADC, no details were released publicly about this hearing.

There are no further referrals to the FADC at this stage.

 

Tags: FADC

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Comments from our readers

On 22 June 2017 at 12:00 pm Brent Sheather said:
The FMA never cease to amaze; “a one-off 5% commission creates a conflict of interest” but a 4% ongoing management expense ratio on a fund is “all good”. I personally have very little confidence in the FMA when they do this sort of thing. Yes, a 5% one-off commission is probably a conflict of interest (maybe) but if it is why isn’t a 4% ongoing MER? How can an AFA recommending such a fund which also pays an ongoing trail not be conflicted? The FMA really isn’t putting retail clients’ interests first with this sort of highly selective intervention.
On 22 June 2017 at 5:07 pm Denis said:
"The UK pension transfers had a "UK end" and a "New Zealand end" the FMA said, and the adviser's code obligations applied at each. But the adviser argued the UK end did not fall within his scope of service. The FADC
backed him on that point."


This is important to note if you have a UK pension and you are attracted to the promises to "unlock" your pension. If it turns out that transferring your UK pension was a dumb move, you are totally on your own.
On 22 June 2017 at 5:20 pm John Milner said:
I have read the decision. It looks like the FMA was just as much on trial. Clutching at straws I think is the term.

There was no actual client complaint and the FMA looked desperate for a scalp - of any kind.

And talking about scalping; Brent is right, the BEOT continues to pillage the unsuspecting while the FMA drags some poor bugger through the FADC for what hasn't amounted to much and could have been addressed directly with the adviser. Shame on you.
On 23 June 2017 at 5:36 am Denis said:
It seems that the FMA set these proceedings in train after a review of the files. If there has been malpractice, it doesn't matter if the clients complained or not. They don't know what they don't know.

What I find a bit of a head-scratcher is the fact that you can promote UK pension transfers - and then arrange a UK pension transfer - and get a nice lump sum commission - but when the advice to do t at all is challenged, the answer is to weasel out of that "curly one" by saying that it was, effectively, execution only! If that aspect was so crystal-clear, how come its discussed at such length in the document?
On 23 June 2017 at 10:39 am Murray Weatherston said:
@Denis
You have drawn too broad a conclusion.
Each case rests on its own particular facts.
The FMA as complainant and prosecutor alleged that a UK pension transfer involved two ends - the UK end (the decision to transfer out of an existing pension) and the NZ end (what to transfer into).
FMA alleged XYZ should have considered both ends.
XYZ argued that his terms of engagement did not require him to consider the UK end - because the clients had already decided to exit.
The FADC had to look at this disputed issue and explain their reasons for their conclusion.They did this in pars 18-21.
FADC sided with XYZ and concluded that "none of the complaints related to the UK end of pension transfers is made out.".
FMA was told they hadn't presented any evidence from the clients, so all FADC could consider was what the adviser said and what his paperwork showed. This supported his assertion that his scope of service was limited to the NZ end.
Why do you have an issue with that process?
On 23 June 2017 at 12:53 pm Denis said:
@murrayweatherston - my issue is not with the process. It's that the position with the "UK end" part of the transfer (i.e. is it in the client's interest to transfer?) was obviously unclear.

I would have expected a "yes" or a "no" to the question (with evidence)- but instead we have this deflecting "limited scope" assertion from the Adviser.
On 23 June 2017 at 5:26 pm Murray Weatherston said:
@Denis
You must have a different decision than me. In my copy
1. XYZ said the UK end was out of scope. That is, the answer to your question was "No"
2. FMA produced no evidence from clients to say they were unclear about the scope.
3.The FADC agreed with XYZ and said those charges were not made out.

Pray tell What was unclear about that - unless you desired a different outcome?
On 23 June 2017 at 8:25 pm Denis said:
@murrayweatherston

NZ-based AFAs who make out that they are UK pensions specialists surely wouldn't arrange a UK transfer unless the transfer was in the client's interest? Or at least check? Or at least state clearly that this part of the deal was out of scope?

After-the-fact and only after being formally questioned about it, the Adviser asserts that part of the transaction is out of scope. Why didn't he say so at the time?

Murray, if you're happy with that, then fair enough but don't make out that this was a dignified response from a professional person.

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