Law doesn't have to be broken for FMA to take action

What impact a public warning would have on an adviser’s career is one of the considerations the Financial Markets Authority takes into account when determining the sanctions to hand out, its director of regulation says.

Monday, December 10th 2018, 6:00AM 13 Comments

[UPDATED] Liam Mason said he could not get into the detail about how the FMA reached the decision to issue a warning about Brian (John) Ferguson, but talked generally about how the FMA deals with concerns about advisers.

Ferguson was reported to the regulator by his own group, Preferred NZ, for copy-and-pasting client signatures.

Commenters said it could make it difficult for him to continue in the new financial advice regime.

Mason said that was something that the FMA took into account.

But he said, if it was something that clients – present or future – should know about, it was important to be transparent.

It could also serve as a warning to other advisers. “As a regulator we are trying to influence behaviour right across the market. Transparency is an important part of that to make sure the message gets out there about what is unacceptable.”

He said the FMA received more complaints about insurance advisers than investment advisers, and that was why it had had more of a focus on that sector.

It discovered concerns to investigate through its own routine monitoring, he said, or from complaints from members of the public, other advisers, firms and product providers.

Due to the number of complaints and tips received, it could not look at all of them but would prioritise them on the basis of the risk of harm and what breached of legislation were involved. “Sometimes we put things aside for using as part of intelligence. Nothing is thrown away.”

The cases in which there had been a warning made public about an adviser all involved a breach of the law, he said.

When a warning was being considered, the adviser would be briefed about what the FMA thought had been done wrong, and what action was being considered. The adviser would be given an opportunity to explain the situation and argue the facts and well as the FMA’s proposed outcome. There was also a chance to meet face-to-face for a hearing on the issue, he said.

The adviser would be able to take a lawyer or other support to that meeting.

The FMA has a range of actions it can take with AFAs, including giving direction, a warning, referral to the FADC, suspension or cancellation of licence, or court action.

At present, it has fewer tools for RFAs.

Mason said the FMA did not have to think the law had been broken to take action.

“Our function under legislation is to review the conduct in the market. So if we think something is potentially harmful, whether or not it’s illegal, we can comment publicly on it.”

Tags: financial advisers FMA regulation

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Comments from our readers

On 10 December 2018 at 11:30 am Brent Sheather said:
Whilst the FMA may have been justified in going public on this issue my view is that he FMA seems to be far more inclined to go public in respect of small individual advisors than it does when large firms are involved.

I bought to the FMA’s attention the fact that one of the big four vertically integrated banks had on their disclosure statement that they just picked their own products because they were the best not because it maximised their profits.

In this case they thanked me for the info and apparently had a private word to the banks concerned. No public statement, not public rebuke yet in terms of adverse financial outcomes this was a materially bigger deal than this other case.

No surprises that the Royal Commission in Australia has accused their regulators of doing exactly the same thing.

The Australian experience reveals that unless they have a legal system or government to push regulators all they do is pick the low hanging fruit despite the fact that most of the bad behaviour is inflicted by the VIOs.

Any ideas as to why this is the case? Perhaps we should look at the FMA board for a possible answer? Where is Mr Faafoi?
On 10 December 2018 at 3:21 pm gavin austin adviser business compliance said:
Disclosure - I've looked at your web site Brent and can't find any reference to Disclosure except one heading that takes you to a whole self promotion piece about you.

Where is your Disclosure? Just asking as there is no content that I can find that refers to your Disclosure statement being "Available on request and free of Charge" . see sec30 applies to AFA advertising and a website is included as advertising (well it was when I was at FMA).

So the old saying you may recall "People who live in glass houses shouldn't throw stones". Have a great day.
On 10 December 2018 at 9:39 pm Ron Flood said:
Gavin. You might like to open up the menu on Brent's website and click on "Disclosure Statements". There are 3 available for each adviser in his business.

Unfortunately, underneath the PDF links is a load of self opinionated garbage, which in my opinion, comes very close to bringing the AFA community into disrepute. I would be very interested in what others think, especially the FMA
On 11 December 2018 at 9:44 am smitty said:
I had to have a read through, and quite correct, the same old diatribe, but not worthwhile to pursue for bringing the industry in disrepute unfortunately, as he has painted it in wide enough brush strokes. What is interesting though, is that he has missed the point.
We divulge rem structures so that the client is informed, not protected. The client can then make an informed decision.
We have a dispute resolution scheme so that the client has the ability for a binding decision that is independent.
Kudos to Brent and his team for not having any complaints, but that is no reason to not have it. Yes its a cost, but an overall small cost to give the client assurance, that they have independent protection should they need it. Lastly, his website has the primary disclosure document, but unlike some, does not list his secondary, which is interesting.
I would have thought that for someone that stands behinds his and his firms processes and fees so passionately, that he wouldn't have a problem being 100% transparent about his costs.
On 11 December 2018 at 11:45 am John Milner said:
Smitty it is my understanding that a Secondary Disclosure Statement is not required in this situation and would not be appropriate. Each Secondary Disclosure Statement should be specific to work being proposed at that time. Therefore, in many cases with advisers, multiple statements may be applied.
On 11 December 2018 at 12:31 pm Tash said:
I am saddenned by this response. Mr Mason says it is important to be transparent! I raised some queries around the FMA's original reporting that they were 'satisfied' section 34 of the FAA had been breach.
If my questions were misguided, wrong, or misplaced, they could have been easily explained. If my queries had any merit at all, then it is all the more important for the FMA to clarify their legal interpretation or admit they may have got some of the technicalities wrong.
As things stand we now have a response which ignores all that and states the FMA can can simply decide to take action on what they believe is unaccepable.

This does not help me one bit. Besides wondering what the point is of a Code of Conduct or other laws when 'unacccptable' can simply be decreed by the FMA, as an adviser I remain uninformed and uncertain. Does s34 apply to my dealings with the insurer (or any other person I deal with in my financial adviser services business) even though I am not giving them advice or not?
The answer to this has consequences for every financial adviser!
On 11 December 2018 at 12:48 pm LNF said:
I am not aware of the specifics, but providing this is not a specific declaration, if this is as bad as it gets with this amount of publicity, then the industry is squeaky clean
On 11 December 2018 at 2:31 pm smitty said:
Hi John, yes you are correct, but where they are provided, they can quite comfortably provide a range of fees min to max, and then it can be tailored when the client seeks advice.
On 11 December 2018 at 4:01 pm Murray Weatherston said:
I reckon Tash has hit the nail square on the head.
As I read the story, if FMA thinks you have broken the law, FMA may punish you. [They don't need to wait till a Court has so decided.]
If you don't break the law, FMA may still punish you.
That doesn't seem right - due process and all that.
On 11 December 2018 at 5:39 pm LNF said:
To Tash and Murray. I think it is called a Kangaroo Court. It seems you are guilty until proven innocent even if you are guilty of something that is legal
Not a Court in the country would countenance this.
On 11 December 2018 at 6:37 pm LNF said:
Last comment from me. The adviser should set up a Give a Little page and advisers should kick in 1k each and he should take this matter to Court with a writ against the party making these unilateral decisions personally. $10,000,000
On 12 December 2018 at 11:43 am Chatterbox said:
Agree with Brent Sheather - NZ regulators suffer from what is formally termed 'regulatory capture'. A form of government failure which occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating.[1] When regulatory capture occurs, the interests of firms or political groups are prioritized over the interests of the public, leading to a net loss for society. Government agencies suffering regulatory capture are called "captured agencies". Quiet talks with offending large product providers is the FMA form of MO even if illegal conduct is evidenced. I have evidence of nationwide fraud by a large bancassurance group and there is no way to report it unless you want the regulator to pre-warn and cover up the evidence. FMA does not want to cause loss of market confidence by exposing serious misconduct or being shown to be ineffective in a free self-regulated market. Govt. wants to look good and that its all working, so willful blindness is best.
On 22 December 2018 at 6:35 am JPHale said:
@Tash with S34 saying

Financial adviser must not engage in misleading or deceptive conduct
A financial adviser must not engage in conduct in relation to the provision of a financial adviser service that is misleading or deceptive or likely to mislead or deceive.
A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 118).
Compare: 1988 No 234 s 13(1)
Section 34(1): amended, on 1 July 2010, by section 14 of the Financial Advisers Amendment Act 2010 (2010 No 40).

Basically shakes out as if the FMA thinks so, then they can act. The “or is likely to mislead or deceive” is tenuous enough for the FMA to step in.

There’s no court process needed, as the FMA is the regulator. In the recent case there was clear evidence of the conduct, it was deceptive (intended or not) and thus broke the rules.

Add to that under the crimes act and the contracts and commerce law it’s also an offence that carries a jail term.

So in many ways the FMA’s actions were quite reasonable. If taken to court, and the FMA doesn’t need to do that, the outcome would have been significantly harsher for the adviser.

In the context that the issue was administrative shortcuts rather that deeply deceptive conduct the FMA response was reasonable.

On the other side I agree with Chatterbox in that the FMA hasn’t gone hard enough on the VIO QFE’s when they have been out of line, there’s significantly more tools for the FMA available in this space, yet we don’t see the same level of public transparency.

Brent’s right on his comments about disclosure, the best, unsubstantiated BS! However, we also know the ‘best’ is a matter of opinion

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