C is for competency or cop-out

We will never know who C is. But we do know C was, or is, or should've been a financial adviser.

C was recently found guilty of giving inappropriate advice by the disciplinary committee of the Institute of Financial Advisers (IFA) - an industry body representing about 1,200 financial advisers of various stripes.

His crime was to steer a 64-year old lady into investing a large chunk of her retirement money (obtained from "a matrimonial property settlement") into now-defunct finance companies; mostly the worst offenders Bridgecorp and Capital+Merchant.

C's defence was: "I made it clear that I was not a Financial Planner and that our services were limited to presenting her with investment options that were based on her description of her needs."

It's the old 'I was just following orders' line and didn't wash with the IFA, which argued, quite properly, that advisers should give advice.

"We find that argument is not helpful to C," the IFA ruling says.

Despite his obvious incompetence as an investment adviser, though, the IFA declined to fine C - he was described as "financially impecunious", or 'broke' in common language.

It seems C had experienced a run of bad luck: failed marriage; house gone to mortgagee sale, and; forced sale of his 'advisory' business.

Punishment enough, perhaps. C still has a job, apparently as an insurance adviser, which the IFA wants him to keep - mainly so he can earn enough to pay the $25,575 (including GST) the industry body is claiming in costs to cover the disciplinary process.

Revealing C's identity might ruin his career prospects, the IFA argues, saying he "should be entitled to earn a living working for another industry participant, but he should be required to be supervised".

There is little satisfaction in this for the client who brought the charges to the IFA. The industry body has no power to force members to compensate clients but the poor (and now poorer) 64-year woman might've expected the IFA to at least name the culprit and expel him from its ranks.

The IFA has always been reluctant to name those who breach its rules. Maybe that's justified for minor indiscretions but if the IFA - or any body claiming to represent 'professional' interests - wants the public to take its disciplinary powers seriously, naming and shaming of demonstrably incompetent members is a must.

Part of the problem has been a lack of competency standards for the advisory industry. That's about to change. The Securities Commission is currently seeking feedback on its financial adviser competency proposals . The rules should be in place in about 18 months, and with them a proper complaints process with real powers.

But as the Securities Commission paper says: "Rules alone are not enough: incentives that encourage professional responsibility are essential if the financial adviser industry is to earn public confidence in its members' competence and integrity.

 

David Chaplin

 

 

Picture: Bridgecorp was one of the finance companies 'C' advised a client to invest in. Photo / Martin Sykes