FMA Censures DeVere For Breaching Its Licence Obligations

The Financial Markets Authority (FMA) – Te Mana Tatai Hokohoko – has censured Auckland-based financial services firm deVere New Zealand Limited (deVere) for failing to comply with obligations under its Financial Advice Provider (FAP) licence.

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

Following a complaint about deVere’s conduct, which has now been resolved, the FMA conducted a review of its client files. The review found deVere:

· Had inadequate record keeping in relation to advice given to its clients

· Was unable to demonstrate that the recommendations made to clients were suitable

· Failed to ensure its clients understood the financial advice they received and any limitations of the advice

· Inappropriately limited the nature and scope of its advice and failed to clearly articulate those limitations to its clients

· Failed to exercise adequate care, diligence, and skill in providing advice to its clients.

In particular, the FMA found 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. Some of the advised investment products were complex in nature and higher risk. The advisers did not consider the suitability of the recommended products, including whether the customer was fully aware and understood the risks involved in these types of investment products. In some cases, the recommended products were higher in risk than the clients’ risk tolerance.

DeVere accepted there was an absence of proper records, including no records that 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.

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.

FMA’s Director Specialist Supervision and Response, Peter Taylor, said: “FAPs have a duty to comply with the standards of ethical behaviour, conduct and client care as set out in the code of conduct. When advice relates to switching one pension product to another, we would expect an appropriate analysis and comparison to be performed considering the complexity of the product.

“In respect of the pension products deVere advised upon, these decisions made by customers are crucial to their retirement. Significant customer harm may occur if the advice is not suitable, and the adviser has not taken reasonable steps to ensure the customer understands the advice and the risks associated with it. DeVere’s conduct falls short of the standards we expect and had the potential to cause harm to the client’s long-term future as it involved irreversible decisions about their retirement savings.

“The FMA acknowledges that deVere has taken significant steps to improve its compliance and to implement improved record keeping practices. Nevertheless, we consider deVere’s breaches warrant a public censure. Censures hold firms to account while serving as an important reminder of their obligations to their customers. I encourage all FAPs to take note of this censure and the FMA’s expectations that they meet the standards required.”

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 acknowledges deVere’s cooperation to date, its desire to meet in full all its obligations, and its efforts to remedy the breaches. The FMA will monitor deVere’s compliance and completion of the action plan.

Notes

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

· Standard Condition 1 of its financial advice provider licence by failing to create and maintain adequate records in relation to its financial advice service;

· 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;

· Code Standard 4 of the Code by failing to take reasonable steps to ensure that the client understands the financial advice;

· 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

· 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.

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