Insurer dobs in adviser

Lets hope the court deals to this guy. There is more than enough business available for compliant and hard working advisers without this sort of behaviour ( and that extends to inappropriate replacement).

Unclear how it would not be a criminal offence. Its fraud and they should go to jail.

I suspect the reason the FMA is seeing more of this poor conduct lately has little to do with economic conditions and is rather the culmination of years of legislative and regulatory change. Combined that with their own high-profile enforcement action, and conduct guidance stretching back more than 10 years, I think it should come as no surprise to the that financial institutions are starting to refer rogue advisers their way.

When COFI came into full force on 31st March, this introduced a requirement that financial institutions establish, implement, and maintain a fair conduct programme (FCP), designed to ensure compliance with the fair conduct principle (“treat consumers fairly”). A FCP must include policies, processes, systems and controls to ensure that intermediaries operate in a manner consistent with the fair conduct principle (as distinct from the FCP). Where conduct is identified that falls short of this mark, reasonable steps must be taken to mitigate any actual or potential adverse effects of the failure (446J(1)(d)), ensuring any deficiencies are remedied “within a reasonable time” (446J(1)(b)(iii)).

The penalties for breach of one of these (Part 6) provisions is the same as for a breach of a Part 2 “fair dealing” provision. This is where successful prosecution plays a role in informing financial institutions of the potential cost of serious FCP issue. In the case of serious failures of systems and controls leading to breaches of fair dealing provisions, the FMA has secured multiple high-profile judgements (Vero - $3.9M, Cigna - $3.5M, Westpac - $3.25M to mention a few).

Financial institutions have much to gain from self-reporting breaches, co-operation with subsequent investigation, and early admission. In FMA v AIA NZ [2022] this reduced the penalty by 30% from $1M to $700,000. In a June 2023 COFI Guidance Note on Intermediated Distribution, the FMA encourages pro-active self-reporting of serious deficiencies in the intermediated distribution channel (page 23). Other relevant FMA publications in this area include: A Guide to the FMA’s View of Conduct (February 2017); Life Insurer Conduct and Culture (January 2019); and Fair Conduct Programme Insights Report (April 2025).

Finally, there is the issue of remediation. The tombstones are not the problem, after all, no actual clients were directly harmed in the making of that $260,937 of commission. But what of all the real clients of the adviser? Where there’s smoke there’s fire - Le Zhou didn’t wake up one day and decide to try his hand at tombstoning. I’d wager that his book would be rife with non-disclosure (“we don’t need to tell the insurer that”) and cleanskins (“just sign this, I’ll take care of the rest”), not to mention replacement that has left clients in a worse position.

All insurers Le Zhou worked with are now on notice that he was a bad apple, and hopefully their FCPs can respond in a way that identifies and remediates any affected policyholders. Remediation might be as simple as providing the client the opportunity to review their application to ensure full disclosure was made, with any retrospective disclosures fairly underwritten and on the assumption that the client originally entered into the contract in good faith (voiding as a remedy is off the table).

The other option is to wait until claim time, when the client is vulnerable, and try to unravel the mess at that point. That doesn’t seem fair to the client.