The Financial Markets Authority (FMA) has issued a public warning to a financial adviser due to advice he gave clients in relation to their KiwiSaver and other investments following COVID-19 market volatility.
Roger David Gannon, an Authorised Financial Adviser (AFA) of Gannon Insurance Brokers, sent a bulk email in March 2020 to his clients recommending they immediately move their savings in KiwiSaver plans and similar investment funds to ‘low risk’ funds in the wake of market uncertainty caused by COVID-19. The FMA was alerted to the communication after receiving a complaint from one of Mr Gannon’s clients.
As an urgent response in the circumstances of the COVID-related volatility last year, the FMA issued a formal warning to Mr Gannon in May 2020, without naming him. This was to send an important message to both Mr Gannon and the wider industry about the regulator’s expectations for providing suitable advice in extreme market conditions.
The FMA continued to make inquiries into Mr Gannon in the following months and discovered further concerns with his advice process. The FMA determined that a public warning was most appropriate in the circumstances, recognising that Mr Gannon has cooperated fully with the FMA throughout its inquiries.
Following an investigation, the FMA was satisfied that Mr Gannon contravened the Financial Advisers Act 2008 (FA Act), in particular:
- section 22 by failing to meet disclosure requirements
- section 33 by failing to exercise care, diligence, and skill that a reasonable financial adviser would exercise in similar circumstances.
“The FMA believes that Mr Gannon tried to ‘time the market’ by advising clients to switch investment funds multiple times within a short period without adequately explaining the risks of doing so,” the warning said. “When providing this advice, Mr Gannon failed to have proper regard to each client’s risk profile and personal circumstances.”
James Greig, FMA Director of Supervision, said: “Mr Gannon’s advice was a knee-jerk reaction to market volatility at the time and failed to meet the standards expected for supporting his clients.”
In issuing the warning, the FMA took into account that Mr Gannon has engaged an independent consultant to assist with carrying out a professional development plan, compliance training and a review of past advice and supplementing it where appropriate, all of which serve to mitigate the risk of potential future harm. The independent consultant has agreed to report to the FMA on progress with this programme.
The FMA determined a public warning was the appropriate regulatory tool to enforce compliance and hold the adviser to account for the breaches of the Act. There are no civil penalties associated with contraventions to sections 22 and 33 of the FA Act.