FMA Cancels FAP’s Licence

The Financial Markets Authority has cancelled the licence of Financial Advice Provider, Filcare Services, at Filcare’s request.

A statement from the authority says Filcare held a full financial advice provider licence, providing financial advice to approximately 1,800 retail clients, many of whom were migrant workers from the Filipino community.

FMA’s Head of Perimeter and Response Helena Lewis says that “…Filcare’s cancellation follows the termination of its distribution agreement with Fidelity Life Assurance Company Ltd and AIA New Zealand Ltd and our subsequent inquiry into its affairs.”

The FMA’s inquiry found that Filcare’s advisers had contravened its licence obligations by failing to:

• Keep adequate records in relation to advice given to its clients
• Ensure its clients understood the financial advice they received
• Exercise care diligence and skill when providing financial advice to its clients
• Provide adequate disclosures relating to advice
• Demonstrate that recommendations made to clients were suitable

“In particular, we observed that clients did not receive adequate nature and scope disclosures and were therefore unable to make an informed decision about whether to seek, obtain, or act on the advice,” says Lewis.

…advisers failed to demonstrate that the recommendations made to clients were suitable…

She says the FMA also found that Filcare advisers failed to demonstrate that the recommendations made to clients were suitable.

“As an example, for a vast majority of clients, the documentation on file lacked the requisite detail to clearly show how the selected levels of cover were determined, and that the recommendation matched the risk tolerance, financial situation, and needs and goals of the client.”

In cases of replacement advice, the FMA observed minimal evidence that the advisers had considered and reviewed:

• The existing product to see if it continues to meet the clients’ relevant circumstances
• The new product recommended to the client
• The potential benefits that may be lost
• Any other significant consequences of the switch for the client

“Filcare advisers failed to take reasonable steps to ensure clients understood the implications of the financial advice,” says Lewis.

…In files concerning replacement advice, there was no evidence that clients were informed of the potential risks of replacing existing policies…

“In files concerning replacement advice, there was no evidence that clients were informed of the potential risks of replacing existing policies, such as losing benefits they might have otherwise received under original policies, or the likelihood of exclusions or limitations associated with changes in health, lifestyle, or occupation that have occurred since the original policy has been taken out. Clients were also not given sufficient time to understand the advice before deciding whether to follow through with it.”

The FMA says that at the time of its inquiry, Filcare engaged two financial advisers, one of whom is also the sole director of Filcare. The FMA also found that Filcare failed to take reasonable steps to ensure that advisers complied with their duties.

“The FMA will continue to take action where appropriate to ensure that all New Zealanders have access to fair, transparent and efficient financial services,” says Lewis.

Where Clients Can Get Help  

The FMA says Filcare’s clients can complain to dispute resolution service, Financial Services Complaints, whose services are free to consumers.

“For clients who believe they have been affected and have concerns, we recommend they contact Financial Services Complaints and/or their insurer or new adviser to discuss their insurance arrangements.”