Adviser Breaches AFA Code of Conduct

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The Financial Advisers Disciplinary Committee (FADC) has published its findings in a case referred to the Committee by the FMA.

According to the findings, the Authorised Financial Adviser (name suppressed) failed to:

  • Make reasonable inquiries as to the medical circumstances of a client
  • Once aware of a past medical issue affecting existing insurance for another client, failed to act consistently with the requirements of CS 8

The FADC has found that the adviser had breached Code Standard 8 under the Code of Professional Conduct for AFAs, in respect of two clients referred to as Mr P and Mr W, whose identities are permanently suppressed.

The report stated the AFA Code of Conduct, Standard 8 requires “an AFA take reasonable steps to ensure the suitability to a client of a personalised service”. The report also noted that the events relating to this case took place prior to the revised version of the Code’s effect date 1 Dec 2016, so the relevant version of the Code is that issued 1 May 2014.

The complaint from both clients alleged that, because of inadequate inquiry by the Respondent into their medical histories, each client’s cover was susceptible to being cancelled for non-disclosure, which did happen to Mr W.

Regarding Mr P:

The Committee concluded that the adviser did not make his client sufficiently aware of the need for full disclosure in the insurance application, regarding medical history.

Regarding Mr W:

The Committee concluded that the Respondent knew his client’s existing policy with Sovereign had been subject to a lumbar exclusion, yet took his client at his word that he had never had a back injury at all, rather than taking the known information into account when assessing the suitability of the Partners Life product he was recommending to Mr W.

The FMA stated it encourages all AFAs to read and consider the findings of the Committee and said it will comment further on the case following the final determination of the Committee.

The FMA is required under the Financial Advisers Act 2008 to refer a complaint to the FADC if, following an investigation, the FMA believes the conduct of an adviser is in breach of the Code of Professional Conduct for AFAs.

Functions of the FADC include:

  • To conduct disciplinary proceedings arising out of complaints about Authorised Financial Advisers (AFAs) in relation to breaches of the Code of Professional Conduct, as referred to the FADC by the FMA.
  • To consider and impose appropriate penalties that may range from recommending that the FMA cancel an AFA’s authorisation, to imposing a fine of up to $10,000 as a result of disciplinary proceedings.

As the breaches of CS 8 have been upheld, the Committee now moves into the disposition phase and awaits the submission from the Respondent.

The identity of the adviser may be made public after final disposition of the case.

Click here to read the findings from the case in full.