by Susan Edmunds
The Financial Markets Authority has released its latest conduct outcomes report.
In it, it notes that it visited 72 AFAs over 2017. They are the largest population the FMA supervises and it visits to understand how they provide advice and comply with their obligations.
The FMA also reviews disclosure documents and professional development logs.
"We were most concerned about AFAs' disclosure statements that did not comply wiuth regulations and an absence of signed client acknowledgement on client files. It is critical that AFAs can demonstrate they have disclosed all appropriate matters to their clients, and can show why they provided the advice they did," the FMA said.
"Without records of this information, we cannot properly assess their conduct when dealing with clients."
The FMA said it also took the chance to talk to AFAs about the pressures in their businesses and their thoughts on FSLAB. It noted that the proposed changes to the rules brought by FSLAB would transform the size and scale of its work with advisers.
"This provided a great source of intelligence for future monitoring activities and valuable feedback for us about how we should interact with such a vital part of our financial services sector."
Other key conduct actions noted included the FMA's sucessful action against Milford Asset Management trader Mark Warminger, two insider trading cases under way in relation to Eroad and VMob, an ICO prevented by Sell My Good and assessing how licensed participants met the conditions of their licence.
FMA general counsel Nick Kynoch (pictured), said, “The FMA is fully prepared to use its enforcement powers to deal with misconduct by bringing cases to both civil and criminal courts where necessary. We also look to use our full range of regulatory tools to achieve the right outcome and a proportionate use of our resources. We strive, through all of our interactions, to guide and influence providers to improve their focus on delivering good outcomes for investors.
"This includes engagement with the industry by our frontline supervisory teams, for example through licensing and monitoring activities, as well as publishing reports to communicate our expectations to the market.”
He said the FMA remained focused on monitoring activity and conduct on the regulatory perimeter, in particular those that undertake activities without appropriate registration. He said it urged investors to remain sceptical about "get-rich-quick" offers and cold-calling investment schemes.
The report cited two cases of action taken against advisers.
In June 2017, the Financial Advisers Disciplinary Committee (FADC) heard a case against an AFA the FMA believed had breached code standards relating to pension transfer advice and insurance advice.
The FADC concluded the adviser failed to meet obligations in the AFA Code of Conduct to provide clients with written confirmation of his advice. When he gave insurance advice, he made recommendations without a reasonable basis for doing so.
But on some points of the complaint, the committee ruled in the adviser’s favour. The FMA said it had incorporated this ruling into its review standards.
"We wanted clarity on the standards required when giving financial advice to those who want to transfer from overseas pensions and insurance products. The FADC’s decision provides useful guidance on applying the AFA Code of Conduct. It also recognises that advisers need to give their clients a timely record of advice for administration purposes and to help them make sound investment decisions."
Another adviser, Anthony Norman Wilson, pleaded guilty to four charges after forging clients’ initials and amending insurance applications while working as a registered financial adviser.
In one case, he removed a page that disclosed pre-existing conditions, and replaced it with a blank page, which he initialled. When the client made a claim, the insurer declined it, based on non-disclosure of the pre-existing conditions.
Wilson received a sentence of 150 hours of community work and six months’ community detention. He also had to pay reparations of $16,461.
"The relationship between clients and advisers is based on trust," the FMA said.
"Any erosion of that trust has an impact on the overall integrity of the sector. This case is important as it highlights there are criminal consequences when financial advisers abuse the trust of their clients. It also highlights the high personal cost to individuals affected by this type of behaviour."
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