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Complaint laid over 'independence' claim

A former lawyer turned financial adviser has complained to the Financial Markets Authority about an advice group's claim of independence.

Tuesday, May 8th 2018, 6:00AM 10 Comments

by Susan Edmunds

In announcing their recent merger, Lifetime and Camelot said they had created one of the country's "largest independent financial advisories."

Camelot is 29% owned by Booster and it will have a 15% holding in the new organisation.

Financial adviser Sonnie Bailey, a former financial services lawyer, said he had complained to the Financial Markets Authority about the claim of independence, which he said was misleading and deceptive.

"If we see individuals and companies doing inappropriate things, and we don't take action, to an extent we're complicit and helping to put the industry into disrepute. Sunlight is the best disinfectant."

Camelot chief executive Peter Cave said it provided full disclosure of supplier relationships, inclusive of any conflicts of interest, to all clients as part of standard disclosure requirements. 

"Camelot has no production requirements and/or sales quotas with any product or service supplier. Camelot is a DIMS license holder, with Booster being one supplier of investment administration and management services."

A Financial Markets Authority spokesman said: "Through our ongoing monitoring and supervision activity we can review disclosure statements and also promotional materials to ensure they meet the relevant requirements and engage with participants to correct any issues we may find. Under the fair dealing provisions of part 2 in the FMC Act statements cannot be misleading or give a false impression."

Gavin Austin, founder of ABC Compliance, said the claim risked being a breach of section 34 of the Financial Advisers Act, which prohibits a financial adviser from engaging in conduct that is misleading or deceptive, or likely to mislead or deceive.

It is also a code breach - Code standard three of the code of conduction for advisers also requires that advisers do not imply or state that they are independent if a reasonable person would consider they or the services provided were not.

"The code of conduct only applies to authorised financial advisers but the Financial Advisers Act applies to everyone," Austin said.

Tags: camelot

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Comments from our readers

On 8 May 2018 at 7:29 am Murray Weatherston said:
Its going to be fun to spectate the machinations on this one. It might not be clear cut one way or the other.
I can think of five issues that might need to be untangled. No doubt there are more.
1. DIMS is not financial advice under FAA; I think I am right in saying it's specifically excluded from FAA. It comes under a different part the FMCA already
2. While independence is defined in the Code of Professional Conduct for AFAs, I don't think it is actually defined for DIMS.
3. The Code applies to individuals giving financial advice, not their corporate entities. So prima facie the entity is not subject to the independence clauses of the Code.
4. Going forward there will be a new Code. But certainly I haven't seen anything from them about the issue of independence to date.
5. When the new regime is in place, the entity will be the licence holder and so there may be some different rules that will apply.
My intuitive view is as at today a Camelot AFA who asserted she was independent would have a problem under the Code.
With respect to the firm itself, there may be no specific rules that prevent the entity saying it's independent, but there might be issues around Fair Trading or some other general law, but presumably there would need to be a successful prosecution to make that stick - the courts decide these breaches, not the regulator.
Buy in the popcorn and settle in a comfy armchair - let the games begin in earnest.
On 8 May 2018 at 2:47 pm James Sheridan said:
The term Independent Financial Adviser has largely been lost in the New Zealand market. This is despite the fact that this is probably the only term the public understands.
Mu submission is that we should move to a term the public will understand “Independent Financial Adviser” (I.F.A) as the best name to describe exactly what we do.
Please try googling “Independent Financial Adviser” NZ. The results will not point you to any individuals. Instead it mentions Consumer NZ or others recommends you talk to an IFA although virtually none exist.
The Code precludes anyone being classified as independent if any funds and received from any entity apart from the Customer. This barrier is far to high and has destroyed the term in New Zealand.
The code should investigate changing the criteria to better reflect the public’s view of the matter. Precisely, that this adviser is free to choose between the market before his/her recommendations.
Advisers should be called either Independent Financial Advisers or Sales. The public will understand this in an instant
On 8 May 2018 at 5:31 pm henry Filth said:
James, speaking as a mug punter, you are dead right.

An IFA is just what we need.
On 8 May 2018 at 7:54 pm John Milner said:
Couldn’t disagree more James. How can anyone be independent when receiving remuneration / offshore trips, etc. from the very company they are recommending?

This can and does sway decisions on recommended products, no matter how this is portrayed. So no, I don’t think we have got it wrong here in NZ.

A bit of a shame for the majority of professionals out there and I appreciate there is no alternative for risk advice without going broke. And yes, I am an independent Certified Financial Planner who only receives payment from my clients.
On 9 May 2018 at 8:28 am Adviser1 said:
If we can't use the term independent, maybe it's time to call ourselves non-tied advisers like the 1980's? That might be a better description of what is the consumer is receiving - advice from one who is not tied to one provider. Is there any legal reason why I can't add 'non-tied adviser' to my business card?
On 9 May 2018 at 9:13 am BGW said:
As a customer, and (old) financial services lawyer, agree absolutely with John. An advisor cannot by any definition be independent and receive commission from 3rd parties, (even if disclosed).
On 9 May 2018 at 12:17 pm SonnieBailey said:
Hmmmmm. I'm not sure how I feel about this article!

My main point in mentioning my complaint wasn't about Camelot/Lifetime specifically. The more important and general point is that if we see something that doesn't seem appropriate, I think it's our duty to let the FMA know.

This is not the only "complaint" I've made to the FMA and it will not be the last.

I encourage others to make complaints where they see conduct they think is inappropriate:

The people who work at the FMA aren't omniscient and unless we let our concerns be known they may never become aware of issues like this.

Personally, in this instance I'd be happy if the FMA simply tapped Camelot/Lifetime on the shoulder and said "stop using the term 'independent' if you're part-owned by a product issuer", and Camelot/Lifetime stopped using the term "independent", and that was that.
On 9 May 2018 at 12:38 pm Murray Weatherston said:
I have a problem with your last paragraph in the following respect.
I don't think anyone has shown definitively that Camelot/Lifetime (as an entity) are breaching any rules - FMA can't just tap someone on the shoulder without due cause.
So perhaps you could tell us which law/regulation you think Camelot/Lifetime has breached.
On 10 May 2018 at 7:24 am mockingbird said:
Clearly there is confusion amongst those in the financial services sector on what is reasonably considered ‘independent’ advice and what is not – and, if we are all confused, how can a consumer be confident?

Consumers remain oblivious as to who/what the FMA is (or their role on the consumer’s behalf). Consumers still have insufficient financial literacy to make ‘informed decisions’ about a proposed investment or portfolio. Consumers do not commonly ask about experience, skills or education.

But increasingly they do ask about:
1. Fees
2. Independence

1. ‘How much will this cost?’ is something a consumer understands as they consider this in any buying decision (so they can compare and contrast alternatives).
2. ‘Are you independent’ is something I’d argue most consumers intuitively believe is a good question to ask in today’s world (considering NZ’s financial services history and what they read in the paper about blatant conflicts of interests, be it in financial services or other businesses).

FMA Director Mary Holm in fact (in her personal capacity as a commentator) guides consumers to seek fee-only advisers who promise that “ … any commissions or other considerations I receive from financial firms or others are passed on in full to the client … “ and who have “… considered a wide range of products …”

We can dance around the wording, interpretations and legalities of The Code to justify characterising what are aligned advice models as ‘independent’. We can back up claims of ‘independence’ with ‘ah, but we disclose our conflicts in our disclosure statements!’ We all know that few consumers read these and/or disclosure statements as they stand are difficult to use as comparison tools when looking at adviser alternatives.
Let’s not get lost in rule interpretations. This doesn’t serve the consumer in the least, nor encourage professionalism and the consumer confidence in financial services. Rather, let’s BE professional and be guided by the spirit of the rules.

I remain convinced it is a stretch to consider Booster/Lifetime/Camelot ‘ … one of NZ’s largest independents’. My opinion is not about client outcomes nor quality of advice. I’ve never seen an investment portfolio from one of their advisers. But with the related parties involved between product manufacturing and the provision on advice under the group, it is worth asking the FMA to consider the use of the term.

I support Sonnie’s view. Maybe it will stir this debate more fully at FMA and within the CWG.

May we all look forward to the FMA communicating actions taken (or not) arising from Sonnie’s complaint. And – hopefully the CWG is thoroughly re-visiting CS3 to make it mean what it should mean.
On 10 May 2018 at 12:54 pm Barry Read said:
The Financial Advisers Act is a stretch,also it is an article not an advertisement, but as a licence holder under the FMCA section 23 could apply. Was it a substantiated representation? based on the debate, maybe not.

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