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FMA pings adviser for unauthorised advice

Financial services firm FoxPlan has been publically censured by the FMA after five of its representatives were found to be offering services they were not permitted to give.

Wednesday, 28 July 2021

by Matthew Martin

However, the Financial Markets Authority (FMA) stopped short of taking court action against the firm saying an official public censure and remedial action taken by the firm would be an appropriate penalty.

According to the FMA's director of supervision James Greig, the Wellington-based firm was censured after it found one of FoxPlan’s Auckland-based nominated representatives had provided an investment planning service to some clients since mid-2018.

Under the Financial Advisers Act (FA Act) 2008, only Authorised Financial Advisers (AFA) are permitted to provide this service, which involves designing a plan based on an individual’s financial situation and identification of the individual’s investment goals.

Additionally, the FMA found four of FoxPlan’s representatives wrongly informed clients they were an AFA or financial planner, and the FMA had reason to believe FoxPlan’s AFAs failed to comply with disclosure obligations.

This being the need to provide retail clients with their primary disclosure statement, an important document to ensure a client understands the service they are receiving.

“This case reiterates that financial advice firms can be held liable for the actions of their financial advisers,” says Greig.

At the request of the FMA, FoxPlan has undertaken several actions to address the underlying issues around the management of the firm’s advisers and put in place measures to prevent similar misconduct in the future.

FoxPlan has established and implemented an action plan to address the issues identified and has contacted affected customers who received an investment planning service from the nominated representative, including offering them a free review of their investment plan.

“A financial adviser providing a service they are not permitted to carry out is a considerable issue because it has the potential to lead to poor customer outcomes, such as the loss of funds from inadequate service," Greig says.

"New Zealanders put their trust and their families’ financial wellbeing in the hands of their financial advisers so it’s critical we can be confident an adviser is appropriately qualified for the services they provide.

“We considered FoxPlan’s breaches were significant enough to warrant a public censure but not sufficient to meet the threshold for court action.

"A public censure holds an entity to account while serving as an important reminder of firms’ obligations.”

The FMA was satisfied FoxPlan likely breached sections 17, 20A, 20B and 22 of the FA Act, which was repealed and replaced by the Financial Services Legislation Amendment Act (FSLA Act 2019) in March 2021.

The censure was made under section 75D(2)(f) of the FA Act.

Comments from our readers

On 28 July 2021 at 3:16 pm gavin austin adviser business compliance said:
What's interesting is that they have been granted a Transitional License without any additional conditions attached to that. Sort of makes you wonder what criteria the FMA apply for licensing. Are the individual "advisers" or nominated representative still on the FSPR and allowed to continue to give advice. I wonder what thier new disclosure documents look like.
On 28 July 2021 at 4:42 pm Comprehensive Planner said:
I suspect that the directors of Foxplan are breathing a sigh of relief at not being more appropriately penalized given the time since the rules around AFA's, RFA's and QFE advisers were introduced.
QFE and RFA's holding themselves out to be Investment Planners or worse, Financial Planners when the principals and Directors must have known, if they were doing their job to any level of oversight.
On 29 July 2021 at 8:25 am smitty said:
I am puzzled. Not so long ago, an adviser was pinged severely for lack of record keeping. Nothing went wrong and the complaint was raised (not by a client) by the FMA. Here we have what is tantamount to fraudulent representation, and they get a public warning. I can only assume the CFP holders said " I knew nothing of this". I wonder if their CFP is at risk. Anyone care to give an observation?
On 29 July 2021 at 10:54 am Murray Weatherston said:
@smitty
Where do you get the idea that anyone at Foxplan was a CFP?
Seems a few might have been AFAs - and didn't do proper disclosure.
A few others held themselves out to be AFAs when they weren't.
And one nominated rep provided an investment planning service which s/he was statute barred from doing.
Seems to me they all got off pretty lightly given they all prima facie committed offences under the old FAA.
I wonder if FMA isn't adopting an educative stance initially, but at some stage if the alleged benefits to the consumer are to be achieved, they will have to get properly punitive against transgressors.
On 29 July 2021 at 12:27 pm gavin austin adviser business compliance said:
The principal owners of Foxplan Sally and John Killock use the CFP deignation on the website. And also the other adviser who's been there quite a while.
On 30 July 2021 at 1:44 am Life Coach said:
These were not AFA's. They could breach the code of conduct. They could not be referred to the FADC as part of the educative stance on record keeping prior to new legislation. Breaching s17, 20A, 20B and 22 offences at s114 would only net some $60,000 in fines. Impersonation is a lesser offence than failure to keep records as the FMA prescribe.
On 30 July 2021 at 7:08 am Murray Weatherston said:
@gavin
Thanks for the confirmation. I see the Killicks are "Trusted Advisers" as well.
On 30 July 2021 at 7:59 am Pragmatic said:
Given the latest FMA findings, does that mean that Foxplan loses/has their ‘trusted advisor’ designation suspended?

…or are they still considered to be “trusted”?

How do other “trusted advisors” feel?
On 30 July 2021 at 11:32 am Eyeinthesky said:
•five of its representatives were found to be offering services they were not permitted to give
•nominated representatives provided an investment planning service to some clients
•four of the representatives wrongly informed clients they were an AFA or financial planner
•FoxPlan’s AFAs failed to comply with disclosure obligations
From the FMA website: “FoxPlan has contacted affected customers who received an investment planning service from the nominated representative, including offering them a free review of their investment plan.”
A FREE review offered? Seriously? The clients got advice they should not have and they are offered a no cost REVIEW??
Were client funds invested by FoxPlan when a nom-rep presented an application? If so how did that happen with internal checks on who was able to do that?

From FoxPlan’s own website:
“Bonuses - All financial advisers engaged by FoxPlan Ltd (the licensed FAP) are eligible to receive a bonus if a certain level of overall performance is achieved. Whether a bonus is granted is based on many factors, such as quality of advice, client service, client care, compliance as well revenue exceeding base remuneration.”
I wonder if there is a bit of a push there to meet performance criteria – reminiscent of vertically integrated financial providers a while ago.

Stunning they got off so lightly, a bit more than just one errant employee.
On 30 July 2021 at 12:12 pm the_weakest_link said:
Boy, they must've had EXCELLENT records though.
On 30 July 2021 at 12:50 pm w k said:
ummm .... so, does it mean that good record keeping is far more important than understanding and establishing a good long term relationship with your clients?

On 30 July 2021 at 2:10 pm Sideliner said:
When words and reality meet:
“We want to remain at the forefront of ethics and standards in our profession and continue to place the interest of our clients as equal to those of our suppliers, staff and shareholders. Whilst the regulatory environment is firing up the media, and quite rightly putting pressure on questionable business practices, we intend to maintain a level of excellence and improve it. We are determined to exceed, not to follow legislation and regulation with regard Best Business Practice.”
http://www.johnkillick.co.nz/blog.php?p=148
On 30 July 2021 at 6:31 pm smitty said:
Thanks @ Gavin for finding and supporting the information. So, I think the ball is firmly in the court of FANZ now, with regards to both the CFP and Trusted Adviser marks and its attached obligations, expectations and ethical requirements. I guess this public forum won't have a response, but I will be watching any formal communications that may be forthcoming from FANZ around this.
On 2 August 2021 at 9:11 am j foster said:
Without knowing the facts we have to be careful to not make this a witch hunt.

One interesting item I noticed on the Foxplan website was the disclosure that they invoice the client for clawback of initial commission on life insurance products. At least this is disclosed but it could be vulnerable customers cancelling their policies (after say losing their job) and to be hit will a large invoice for the commission clawback could be challenging.

I understand the adviser does not want to wear this but it is does highlight an issue with up front commissions and clawback.

https://foxplan.nz/disclosure
On 2 August 2021 at 3:46 pm DB said:
@j foster

Do not blame the advises.

It is insurers with large up fronts and clawback rules creating this issue.

Also if life insurers allow this to happen - that is advisers invoice clients for the clawback - then it is then look to the insurers to justify.

On 3 August 2021 at 12:36 pm Murray Weatherston said:
@smitty 30 July
The penalty and disciplinary provisions are cute.
I wouldn't expect to see any response from FANZ. The FMA censured the entity. CFP and trusted adviser are individual designations.
In a similar vein of cuteness, the things that led FMA to censure the entity seem more to be offences by individuals in the period up to 15/3/21.
1. AFAs not disclosing properly would come under the Code and therefore subject to FADC hearing if FMA so chose.
2. Holding oneself out to be an AFA when you weren't and/or giving an investment planning service when not qualified would be individual offences - because not an AFA, outside of FADC jurisdiction, but prima facie individual offences against FAA2008 and liable for fines if prosecuted and found guilty.
That didn't happen - one wag suggested to me that FMA spent the monitoring Budget on the earlier FADC case!
Technicalities are important.....
On 6 August 2021 at 9:43 am JPHale said:
This looks to be an initial FMA scalp, so will be a test case for where the FMA pitches their compliance activities.

My initial observations would suggest a review of disclosure, where things like reliability history and transparency of the organisational operation fit and are located. Reliability history is presently indicated in the disclosure requirements after Needs and Scope is defined, while Foxplan has a notice, without detail, that they have been subject to censure on the bottom of their website disclosure. This may precipitate amendments we all have to adjust to, so a case of watch and learn is likely.

Also while we are aware of the information in this article, we don't know if other aspects of the business are still under investigation, the comments about documentation and the history on documentation from the FMA might suggest there is more to this than we currently know and Foxplan won't be broadcasting that either.

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