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In 2019, the Financial Markets Authority audited services provided in 2017 and 2018 by the adviser, whose details, along with her clients, are suppressed.
Counsel for the FMA, Simon Chapman, alleged the adviser did not comprehend she was providing personalised advice in relation to four clients, therefore had not kept proper records.
Barrister Lisa Hansen, for the adviser, explained that three clients didn't meet the threshold for personalised service therefore had been provided a different level of advice.
In the case of the fourth, the FMA had failed to uplift the correct papers demonstrating the client’s status, Hansen said.
The adviser responded to most of Chapman’s questions by stating, and re-stating that no client would receive any personalised service from her office until they had completed a full financial questionnaire and committed to a comprehensive financial plan. Any cursory advice passed before that commitment, she considered, fell under her definition of “limited advice”, a term she considered more customer-friendly than “class advice”, which is used in legislation.
Frustration with the 3,000 page file and months of preparation was evident on the part of Disciplinary Committee Chair, former Judge, Sir Bruce Robertson.
He opened by suggesting to the prosecution, “I would have thought we would have distilled your case by now.”
Chapman began by stating this was a case about records. However, much of the day was spent discussing definitions of “personalised service”, “client”, “class advice”, “limited advice”, and “no advice”.
Robertson questioned the relevance of the example of a couple who were clients of the adviser’s Residential Property Service, and had opted to leave a home loan account open although it had been paid off.
“What’s the financial service in advising to leave a mortgage document open, what is financial at all about that activity? Is there no common sense rationality in the operation of the code?”
Another client whose file was discussed was a retirement-aged man who enjoyed risk and liked to maximise his gains. The adviser was challenged to call him a client but she told the hearing she could not, as he had never completed the required questionnaire, and simply visited her downtown office for casual advice.
“I have been talking to this gentleman for a number of years about his need for personalised service, but people want high returns,” she said.
She provided “limited advice”, and documented it as such, when sharing information on replacement investments following the forced sale of a shareholding. Had she provided personalised service to the client, the adviser believed she could have helped with wise placement of about $700,000. As it was, he simply sought advice on the investment of $150,000, into three opportunities he learned about through her office.
In her formal interview with the FMA, the adviser had agreed that discussions around this client’s Rio Tinto shares were “personalised”, because she happened to know a singular circumstance relating to the man’s life. She regretted the admission, she told the hearing, as well as the inability to withdraw it.
Another client was beamed into the hearing from Colorado, to answer whether she and her husband believed they had received personalised service from the adviser despite not having completed the questionnaire. Chapman pointed out that the adviser had noted that a long-held insurance policy ought to be retained.
While the adviser acknowledged awareness of some of the circumstances of the blended family and their “wider and older” health status, she refuted noting a “gold standard” insurance policy would be retained constituted personalised service.
Chapman questioned the records kept by the adviser in relation to the fourth client, especially improvement to the client’s NZ Funds investment profile.
Four times the adviser had downloaded detailed tables to assist the client with decision making.
“Can I just clarify the squiggly lines [in the notes]?” the adviser was asked. “That’s my demonstrating volatility to the client, that’s explaining the risk.”
With the assistance of counsel, the adviser conceded she may hold an idiosyncratic view of the term client. She further explained that in her practice, a “prospect” became a client once they had completed a financial questionnaire and agreed to a financial plan. This view was formed through her background in the insurance industry. Until that point, all advice given is qualified, limited or, she agreed, “class” advice as defined by the Act.
“I don’t accept that having a different view means that I don’t understand the legislation.”
Chapman read from section 15 of the Act that service becomes personalised when the adviser takes into account the personal financial situation or goals of the client, but the adviser reiterated her threshold for personalised service was related to completion of relevant questionnaires.
The fact that she was aware of occasional circumstances or ambitions of casual clients did not, in her view, constitute personalised service.
“The separation of goals from money is untenable, that’s a life coach, working towards people’s goals.”
The committee reserved its decision.
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It appears that they have also taken a tightly prescribed view of the application of the Act rather than looking at it from a Principled basis.
Admittedly there are few facts given in the report and possibly the adviser could have done better, but has she actually broken the Principle of the Act? I don't necessarily support her view of "advice" or "Client" please show me where there is harm given we are expected to interpret a Principles based piece of legislation.