NZ Regulator Warns Adviser on Churn, Deceptive Conduct

In a move that supports its documented strategy on how it will address churning, New Zealand’s financial services regulator has detailed why it has issued a warning to an adviser for engaging in misleading or deceptive conduct.

The regulator, the Financial Markets Authority, released a statement last week in which it said it has warned an individual ‘…in relation to suspected misleading or deceptive conduct by a registered financial adviser.’

Following its investigation, the regulator concluded the adviser had engaged in misleading or deceptive conduct when he:

• Advised his clients of an alternative life cover plan with a different insurance provider but did not provide them with any information about policy pricing.  The individual then provided a direct debit form to his clients for them to complete, which his clients ignored.
• Completed and submitted the direct debit form on his clients’ behalf without authority
• Completed and submitted a declaration of good health on his clients’ behalf without authority

The FMA only issued a warning in this instance because of a number of related issues, including the fact that the adviser has already removed himself from the industry. It said that in making its decision, it also considered public interest factors specific to this case, which included:

• The individual has voluntarily deregistered from the FSPR [Financial Service Providers Register] and, consequently, removed himself from the financial advice and insurance industry.  No threat is posed to future or existing clients.
• The individual’s employment was terminated.
• The FMA is satisfied that the incident was a one-off and of a low monetary value.  The individual’s employer has reviewed all relevant files and has identified no other misconduct.
• The individual had made no financial gain.
• The clients suffered no monetary loss and remain insured.
• The individual considered the product was appropriate for his client when recommending the policy change.

In its statement the regulator said all of these factors and that the individual co-operated with it during its investigation led to the decision not to name the person concerned.

This release from the FMA reflects the position it recently articulated on how it would address the issue of churning in New Zealand. It views this policy, which includes monitoring of advisers and site visits where particular issues have been identified, as a more prudent approach in the first instance to the issues of churning and adviser remuneration, than the more prescriptive policy paths being taken by Governments in Australia and elsewhere (see: Risk Commissions in NZ to Stay).