News that a FAP has been censured by the FMA for breaching its licence attracted strong reader interest this week…

Auckland-based financial services firm deVere New Zealand Limited (deVere) has been censured by the FMA for breaching its FAP licence.

The firm provides advice on insurance, investments, and retirement planning, including KiwiSaver and UK pension transfers. The censure relates to issues concerning the firm’s conduct while advising clients on UK pension transfers.

The FMA says it acknowledges deVere’s cooperation to date, its desire to meet in full all its obligations, and its efforts to remedy the breaches (listed bottom of page).

Issues with the firm came to light following a complaint about deVere’s conduct, which has now been resolved. The FMA then conducted a review of its client files.

Its review found deVere:

  1. Had inadequate record keeping in relation to advice given to its clients
  2. Was unable to demonstrate that the recommendations made to clients were suitable
  3. Failed to ensure its clients understood the financial advice they received and any limitations of the advice
  4. Inappropriately limited the nature and scope of its advice and failed to clearly articulate those limitations to its clients
  5. Failed to exercise adequate care, diligence, and skill in providing advice to its clients.

In particular, the FMA says deVere’s advisers failed to adequately consider the client’s investing experience and financial product knowledge, their risk profile in their advice on pension transfers, and the investments they recommended to the client.

The FMA states that some of the advised investment products were complex and higher risk.

It also states deVere’s advisers did not consider the suitability of the recommended products, including whether the customer was fully aware and understood the risks. In some cases, states the FMA, the recommended products were higher risk than the clients’ risk tolerance.

In a statement, the FMA says DeVere accepted there was an absence of proper records, including no records the adviser discussed the advantages, disadvantages, risks, and benefits of switching from their clients’ current plan to the platform and portfolio recommended with their clients.

In addition, the FMA states there was no analysis or other documentation to show that deVere considered the comprehensive advice from a UK licensed adviser recommending the client not switch out of their current defined benefit pension plans, and demonstrating that the customer understood a number of disadvantages and risks in doing so. For example the loss of an income stream that a defined benefit scheme provides that the FMA would expect an adviser acting with care, diligence and skill to do so.

DeVere must submit an action plan to the FMA outlining the steps it will take, and by when, to remedy the breaches and ensure it does not breach its obligations in future. The FMA will monitor deVere’s compliance and completion of the action plan.

DeVere’s breaches relate to its licence obligations as follows: 

  1. Standard Condition 1 of its financial advice provider licence by failing to create and maintain adequate records in relation to its financial advice service
  2. Code Standard 3 of the Code of Professional Conduct for Financial Advice Services (the Code) by failing to ensure that the financial advice is suitable for the client, having regard to the nature and scope of the financial advice
  3. Code Standard 4 of the Code by failing to take reasonable steps to ensure that the client understands the financial advice
  4. Section 431J of the Financial Markets Conduct Act 2013 (FMC Act) by failing to ensure the client understand the nature and scope of advice; and
  5. Section 431L of the FMC Act by failing to exercise the care, diligence, and skill that a prudent person engaged in the occupation of giving regulated financial advice would exercise in the same circumstances