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FADC hands down its punishment in non-disclosure case

A financial adviser who breached the Code of Conduct by skimping on client medical histories in insurance applications has learnt the fate. 

Thursday, May 16th 2019, 6:00AM 5 Comments

by Miriam Bell

The  Financial Advisers Disciplinary Committee (FADC) has decided to censure the Auckland insurance adviser, but not name him. That means that he will have to disclose the breaches – which the FADC said were at lower end of the scale - to prospective clients for the next five years.

However, the adviser will retain permanent suppression.

The Financial Markets Authority, which prosecuted the case, originally sought censure and/or a fine, however it later submitted he should be named following online activity which had temporarily revealed the adviser's name. The FMA also argued the adviser showed no remorse.

The case, which has generated significant debate, is the first case of its type against an insurance adviser to be heard by the FADC.

It came to public attention back in March when the Financial Markets Authority, who was the complainant, took the adviser to the FADC over a number of non-disclosure issues.

The FMA alleged the adviser had failed to disclose pre-existing medical conditions on two client applications and that, for one of the clients, this resulted in them buying a useless policy.

In connection to this, the FMA alleged the adviser had not kept good records.

In its decision on the matter, the FADC found that the adviser had breached code standard eight (CS8) - requiring him to ensure personalised advice was suitable for clients - in relation to the clients.

One of the breaches involved the adviser having failed to make reasonable enquiries into the medical circumstances of one of the clients.

The other breach involved the second client and was more contentious. It related to the FADC finding, that once aware of a past medical issue affecting existing insurance with the client, the adviser had failed to act consistently with the requirements of CS 8.

Not only did the case itself prompt debate, but so too did the FADC’s decision with some commentators saying that advisers should be very worried about it.

In the FADC’s decision on penalties, which was released today, the FADC acknowledged again that the breaches were at the lower end of the scale.

But it said that the breaches could not simply be ignored, rather they had to be marked out as unacceptable to order to show the effectiveness of the disciplinary process in upholding professional standards.

For that reason, the FADC said the breaches required censure. But it decided that it was not appropriate to impose a monetary penalty, either by way of a fine or costs, on the adviser.

Both the adviser and the FMA have 20 days to appeal the FADC’s decision. The adviser told Good Returns that, at this stage, he doesn’t plan to appeal.

Read more:

Adviser breached code 

The Wrap: Advisers should be very worried over today’s FADC ruling 

Tags: AFA court Disclosure FADC FMA insurance Insurance Advisers non-disclosure

« Degree work continues despite Code opting for Level FiveAegis on the block - potentially »

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Comments from our readers

On 15 May 2019 at 3:51 pm Peter Dredge said:
Why this is seen as a lower degree of offence defeats me. It doesn’t get much worse than leaving a client completely unprotected just to earn a commission. I’m also left wondering whether existing policies were replaced, depriving the client of coverage of pre-existing conditions.

What’s missing is any hint from the FMA that the authority has any idea of what good advice looks like. They certainly didn’t when I met with them to discuss this 2 years ago.

Peter Dredge
On 15 May 2019 at 5:44 pm The Adviser In this FADC case said:
Peter Dredge... the case was a little more complex than you might deduce from this article. Perhaps reading the various articles and comments from GoodReturns in April (about this case) would help clarify things for you.
On 16 May 2019 at 9:46 am Bikedude said:
How can this possibly be better than the case involving Brian Fergusson. Be fair to all. Either name and shame the lot or no one. This appears to be deliberate intent. Come on FMA , sort it out. Your credibility wanes by the case.
On 16 May 2019 at 1:16 pm The Adviser In this FADC case said:
Bikedude - the FADC found that my part in the non-disclosure was unintentional. They also found that one of the clients was intentionally misleading me and the insurer.
On 16 May 2019 at 2:52 pm Murray Weatherston said:
@all

Need to be fair and recognise different situations.

In this latest case T was an AFA and was tried by the FADC, with FMA prosecutor. The decision to suppress T's name was taken by the FADC. T was censured, but the only people who will ever be aware of this are T's future clients if they choose to read closely his primary disclosure statement.

Brian fergusson was a rbnafa (RFA in common parlance) so he could not be referred to FADC.

FMA chose to give a public warning and to make it effective named BF.

So T might count him or herself lucky to have been an AFA and in front of FADC, who exercised their ability to suppress his/her actual name

Under FMCA (as amended by FSLAA) any "financial adviser" (but note no nominated representative) can be referred to FADC.

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