NEWS

New regulations will improve advice

The chairman of the code working group, Angus Dale-Jones, said the adviser regulation changes, which started on March 15, would create widespread improvement throughout the industry.

“The whole philosophy of this change in legislation is to lift the game of advisers.

“When MBIE began working through this process they wanted to lift the game in two ways, and that has been central to all of the regulation changes.

Dale-Jones said the government was looking to improve both the availability and quality of financial advice.

“In everything that we have done in building the code we have focused on those two words, availability and quality. “In order to achieve those objectives the legislation removed barriers that had previously existed, and it created in its place one blanket legislation for all different types of advice.

For Dale-Jones that balancing act has been maintained with three things the adviser needs to consider moving into the new regime.

“The first is competence. Everyone who enters the new regime will have gotten through those competence hurdles. But really where I want advisers to focus on in terms of competence is their continued professional development,” he said.

“The second point is for advisers to look at the standards that are about getting your overall ethical standards and conduct arrangements for your business as a whole working well. It’s not so much thinking about each individual client, but thinking about clients as a whole.

“The third point for advisers [is] the client care standards. These are getting the adviser to consider what they should do in every interaction with clients. The big reminder to people is to explain to your client what you are doing and what you are not doing.”

Dale-Jones believes the code contains a built in flexibility that allows advisers to get on board with relative ease and points to future strength across the advice industry.

Anyone applying for a Financial Provider License must now apply for a full licence as the transitional period has ended.

FADC keeps adviser’s identity secret – against her wishes

The Financial Advisers Disciplinary Committee has decided not to release the name of an adviser who was recently censured for three instances of poor record keeping.

The committee, made up of chairman Sir Bruce Robertson, Tracey Berry and Sarah-Jane Weir, met in January this year and concluded the adviser had breached Code Standards 12 and 15 under the Code of Professional Conduct for Authorised Financial Advisers.

In its decision, released on March 4, the Committee found the Respondent (adviser) had failed In the case of three clients to record in writing adequate information about a personalised service provided to a retail client and to demonstrate adequate knowledge of the relevant legislative obligations which result from the term “personalised service”.

The committee also concluded that the adviser did not need to be named as they had indicated they would no longer be operating as a financial adviser in future and “…the Committee notes that the Respondent’s breaches of the Code are less serious than those breaches found in other cases before the Committee”. “There is no suggestion that the Respondent has improperly benefited at the expense of her clients, or that any client has been disadvantaged,” the committee stated in its decision.

“There are no previous findings of misconduct against the Respondent.

“However, the breaches are not to be treated lightly. Record keeping is a fundamental duty of an adviser that underpins the supervisory regime established by the Act and its importance cannot be minimised.

“It’s therefore important to sanction breaches where there are multiple instances of poor record keeping. There is a need to reinforce professional standards and ensure the profession remains conscious of the significance of proper records.

The breaches of Code Standards 12 and 15 come down to a misunderstanding of personalised service, and the obligations providing a personalised service engages (including record keeping).

The committee went on to say that personalised service is a core concept in the Act, “…it is a gateway to many of the Act’s disclosure obligations (which, in turn, are central to the Act’s scheme for informing and protecting the public).

“A fundamental failure to understand what it means (and therefore when the ensuing obligations are triggered) means some disciplinary action is warranted.

“The Committee notes that the Respondent has indicated that she intends to leave the industry and has confirmed to the FMA that she will take the necessary administrative steps to wind up her financial advice practice by no later than 31 March 2021.”

Ongoing supervision was not required in this case and the adviser was censured for breaches of the code. No costs were sought by the committee and a permanent name suppression order was put in place.

“Having considered the competing factors, including the important principle of open justice, we note that the publication of the details of the Committee’s decision provides market participants with both visible deterrence of code breaches and clear education on the nature, extent and seriousness of their obligations to keep proper records.

“Publication of the Respondent’s identity would not further these objectives. As the Respondent intends to the leave the profession, providing sufficient protective mechanism for the public or future clients is not a factor,” the committee said.

But FMA names adviser

Earlier this month, the Financial Markets Authority (FMA) issued a warning to a financial adviser regarding KiwiSaver advice he gave clients during Covid-19 market volatility.

Roger Gannon, an Authorised Financial Adviser at Gannon Insurance Brokers, sent a bulk email to his clients in March 2020. He recommended they immediately move their KiwiSaver savings plans and similar investment funds to “low risk” funds in the wake of market uncertainty caused by Covid-19.

The FMA received a complaint from one of Gannon’s clients and in May 2020 the regulator issued a formal warning to Gannon and the industry of its expectations around suitable advice for market conditions. Gannon was not named at this point.

The FMA made further inquiries into Gannon and discovered other concerns with his advice process and determined that a public warning was appropriate in the circumstances, recognising that Gannon cooperated fully with the FMA throughout its inquiries.

Following its investigation, the FMA decided that Gannon contravened the Financial Advisers Act 2008, in particular, Section 22 - by failing to meet disclosure requirements and Section 33 - by failing to exercise care, diligence, and skill that a reasonable financial adviser would exercise in similar circumstances.

There are no civil penalties associated with contraventions to sections 22 and 33 of the Act and the FMA determined the public warning was sufficient to enforce compliance and hold the adviser to account for the breaches of the Act.

James Greig, FMA director of supervision, said Gannon’s advice was “…a knee-jerk reaction to market volatility at the time and failed to meet the standards expected for supporting his clients.”

Gannon told Good Returns that he believes a fair outcome has been reached.

“Not only is it fair but it has been good for both me and the business. I have taken a lot of steps to ensure that I am compliant now. All the recommendations and advice that I give now are top-notch.”

In issuing its warning, the FMA took into account that Gannon has engaged an independent consultant to assist with carrying out a professional development plan, compliance training and a review of past advice and supplementing it where appropriate. All of which serve to mitigate the risk of potential future harm.

Manager takes a bet on cryptocurrency

NZ Funds has part of its KiwiSaver fund invested in cryptocurrency, and says that advisers should remain curious about the oft-maligned asset class.

In a volatile market, fund managers should remain interested in different kinds of asset classes, James Grigor, chief investment officer at NZ Funds tells Good Returns. For Grigor and the team behind the KiwiSaver portfolio at NZ Funds that means allocating money into cryptocurrency.

He says “The way that we think about managing money for our clients, the building blocks of our portfolios are always going to be shares and bonds. But we do think that you need to take a step back and think, ‘Where are the opportunities in the investment landscape to generate returns over and above that?’.”

Grigor compares bitcoin to investing in gold.

“[With] all of the hallmarks and the case for investing in gold, you should absolutely be investing in bitcoin. The investment philosophy and reasoning is very similar, around store of value and protecting from government inflation.” The allocation of cryptocurrency, or bitcoin, in the NZ Funds KiwiSaver portfolio has raised industry eyebrows. But Grigor says that the critics don’t understand the details of what is at play.

“To those people that are naysayers about cryptocurrencies or other investments that are not your vanilla stocks and bonds, take some time to step back and be curious.

“Put some capacity into researching these things because it all helps to generate wealth for people’s retirements.”

For advisers whose clients are asking them about cryptocurrency investment Grigor has some advice.

“Advisers need to be sceptical about all asset classes. Not just alternative assets. But I would say that you have to continually challenge yourself to be curious and to be innovative.

“I would encourage advisers to stay curious, keep asking questions, challenge their investment management.

“Challenge NZ Funds for having bitcoin, but challenge other investment managers for why they don’t. Because I believe that many of the ones who don't, don’t understand enough about the asset class and have assumed that it is not right for them.” A