[The Wrap] Advisers should be very worried over today's FADC ruling

The Financial Advisers Disciplinary Committee has today ruled on Monday hearing Good Returns reported on this week. The adviser at the centre of the hearing lost his case. I think RFAs should be very worried about this decision.

It seems the FMA was pretty keen on a scalp in the life insurance sector and it was presented with the opportunity to get one in a way many wouldn't have expected.

The adviser at the centre of the case is an Authorised Financial Adviser who did, it appears, a good deal of life insurance. Indeed he specialised in providing cover to people in the building trade.

About five years ago he sold some of his book to a Registered Financial Adviser; who then became the complaint in this case.

This was based on information for Client 1 who is described in the FADC decision as being "cavalier in a number of aspects of his evidence and surprisingly glib about matters as important as medical disclosure."

Counsel representing the FMA, Michael Hodge, admitted to the FADC hearing that this case was at the low-end level of alleged offending.

It's "not a high end case," he said. "It's at the lesser order of seriousness,"

It's interesting that in the eight years since the FADC was established it has only produced 12 decisions in nine cases. With this track record you can argue that the AFA population in New Zealand has been pretty well behaved. 

Originally seven charges were alleged, but when it came to the hearing that had reduced to two and also the FMA withdrew charges alleging a breach of Code Standard 12 and limited them to CS 8 (the old version) which related to not keeping good records.

At the hearing there was no shortage of documents, indeed there were two rather large bundles of documents. 

Perhaps most concerning is that some of the client documents had been destroyed at some time after the books of business were sold.

It's worth pointing out too that there was no advice expertise amongst the three committee members who heard the case; Two were from the legal profession and the third's career was "focused on providing investment research to fund managers’ globally."


  • Insurance personal health disclosure forms that only require a tick for 'yes' and nothing for 'no' leave the adviser exposed to a claim later that they didn't take a client through the form thoroughly
  • When selling clients to another adviser the vendor must refuse to destroy their client records as they are giving away custody of evidence that could protect them against a claim later
  • If you simply accept what a client tells you in an interview, without making further inquiries elsewhere, you could potentially be found to be in breach - especially when it comes to health disclosures
  • Tell the insurer everything you know from an interview. If the client says they do not have a health issue and refuse to disclose it in their form you must tell the insurer in a separate communication about any discussions - even if you risk losing your client. This is especially so if there is the slightest evidence to suggest the client could be lying
  • Start electronically recording all of your interactions with clients because, when push comes to shove, the blame could very well be yours no matter how many 50 page Statement of Advice documents you write.




Most Read

Get TMM delivered to your inbox each week

Sign Up