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[The Wrap] What's the point of the FADC?

Something unusual happened the other week - the Financial Advisers Disciplinary Committee actually held a hearing.

Monday, December 21st 2020, 9:03AM 2 Comments

by Philip Macalister

Actually getting to a hearing was a mission in itself with the case been rescheduled a number of times in the lead up. Good Returns' experience with the registry, which is run by the Financial Markets Authority lead to an official complaint being made.

The FADC is a quasi-judicial body, established in December 2010, but certainly hasn't been run with the degree of professionalism required.

I've commented before about the huge amount of resources thrown at policing the financial adviser community, and the results. Very few cases have gone to hearing since the FADC was established and the recent ones have been of, arguably, minor significance.

In the decade it has been running FADC has had nine cases, including David Ross, at the moment it is more than a year between events.

A good demonstration of how little work the FADC currently does comes from the FMA's annual report released last week. 

Financial Advisers Disciplinary Committee fees are paid on the basis of time spent on the work of the committee. In the 12 months to XXX the total paid in fees was $6,000 compared to $19,000 in the previous year. It's certainly not a gig the committee members will get rich on and their work load is a function of the cases that the FMA prosecutes.

In the past year financial advisers appear to have given the FMA little grief. The annual report documents two instances. In December last year it dealt with non-compliance by an AFA. 

"Following onsite monitoring, we issued a feedback letter to an Authorised Financial Adviser, citing lower-level non-compliance, where requirements were not met but there was no current identifiable financial risk or harm to clients. The AFA was required to remedy issues and provide an update to us."

Then in May an AFA received an formal warning after recommending clients "urgently move their investments to ‘low-risk’ funds in the wake of Covid-19." This adviser failed to "clarify that the advice may not be suitable for all clients."

The recent case is interesting, but it was more a case of being pedantic rather than dealing with potential client harm.

It mainly hinged on whether the adviser was giving class advice or personalised advice. We often hear about how regulation is about protecting the client, and in this case there appears little evidence the clients who gave evidence suffered any losses.

FADC chairman, retired judge Sir Bruce Robertson, noted this and at times was less than complimentary about the prosecution's case.

He asked: "Isn't this case about whether or not personalised service was being provided?" 

The FMA counsel, Simon Chapman, responded: "This is a records case."

In one exchange late in the hearing, the adviser voiced distress that the case would bring into question her integrity or her service to her clients.

Robertson was quick to console her from the bench, stating her integrity and service to clients were not in question. "What the FMA wants to know is if you understand the legislation" he said.

A professional needs a disciplinary process, but it does seem, based on the past decade that there is not too much to sort out. That's of course forgetting about ponzi scheme operators David Ross and Barry Kloogh. They didn't get picked up in monitoring to appear before the FADC, rather they went straight to a full court.

Things may well change in after March 15 next year when the universe of advisers being policed expands massively. Currently the FADC is pretty much only covering the 2000 authorised financial advisers. Under transitional licensing it appears there are now more then 16,000 advisers who will be monitored.

No doubt the FMA already has a short list of advisers it will target for monitoring visits and maybe the FADC will start to get busy.


Tags: FADC Opinion

« Warning over retirement spending issuedFMA’s latest licence numbers show advisers are poised for change »

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Comments from our readers

On 21 December 2020 at 5:36 pm John Milner said:
How disappointed the FMA must be. All dressed up with no where to go.
On 22 December 2020 at 7:22 am Murray Weatherston said:
9 cases over 9.5 years of the FAA is just less than 1 case per year. Given there have been about 2000 AFAs that's a rate of 0.05% per annum.

Is this evidence that
(a) there never was a problem; or
(b) AFAs have been a very obedient class; or
(c) something else

Holiday greetings to all - or if you prefer the non-PC version Merry Xmas and a Happy New Year.

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