In 2014, Finn engaged a financial adviser because he wanted to plan for his retirement. Finn had never contributed to his Kiwisaver, and he was concerned that he would not have enough money saved to retire at 65.
The financial adviser developed an investment strategy for Finn. The financial adviser recommended that Finn make monthly contributions to an investment portfolio. The financial adviser explained to Finn that if he continued to make regular monthly contributions to the investment portfolio, sold his property later in life, and continued working until 65, that he would likely be able to retire with enough money to live comfortably. The financial adviser told Finn that it was important to contribute to the investment portfolio consistently, or he may not meet his retirement goals.
Finn began contributing $100 per month to the investment portfolio. However, in late 2015 Finn was faced with challenging financial circumstances and was struggling to get by. Finn felt that he had no choice but to pause his contributions to the investment portfolio. After several months, Finn’s finances improve and he resumed his contributions to the investment portfolio.
Unfortunately, Finn’s financial situation remained unstable for several years. Finn was only able to make sporadic contributions to his portfolio going forward, and on a few occasions, he withdrew money from the portfolio to meet his living costs. Finn also sold a property around this time, which he had intended to hold onto until he was ready to retire, and which would have contributed a significant amount to his retirement funds. Over this period, Finn met with the financial adviser two or three times a year. Finn also received six monthly transaction statements for the portfolio. The financial adviser repeatedly told Finn that his investment portfolio was on track for his retirement in their meetings.
In 2023, Finn contacted the financial adviser because he wanted to withdraw some money from the investment portfolio. Finn was shocked when he saw the balance of the investment portfolio was much lower than he expected. Finn felt that the financial adviser had misled him.
Finn complained to FSCL in July 2023.
Dispute
Finn felt that the financial adviser had misrepresented the performance of his retirement fund, and as a result, Finn would not be able to retire when he had planned to. Finn was extremely distressed to discover that the investment portfolio’s balance was much lower than he expected. Finn was unaware that his contributions to the portfolio had not resumed consistently and felt that the financial adviser failed to keep him fully informed.
The financial adviser said that Finn could not have been unaware of the balance of his investment portfolio. The financial adviser referred to Finn’s sporadic contributions over several years, and the significant withdrawals that Finn made from portfolio. The financial adviser also said that Finn had access to six-monthly transaction statements that showed a lack of consistent contributions to the investment portfolio.
The financial adviser did not mention the meetings where he told Finn that his investment portfolio was progressing well.
Review
We considered Finn’s recollection of what the financial adviser had told him in their meetings. We also took into account Finn’s sporadic contributions to the fund, and the withdrawals he made. In our view, the financial adviser had erred by telling Finn that he was on track with his savings. However, Finn had also had sufficient opportunity to be aware of how the investment portfolio was performing. We did not think it was reasonable for Finn to expect the fund’s balance to be as high as he had hoped, given that he had paused his contributions on several occasions and made significant withdrawals.
In our view, Finn’s financial adviser had overstated the importance of Finn’s monthly contributions to his investment portfolio. We noted that most of Finn’s retirement funds would have come from the sale of his properties. Finn’s decision to sell one of his properties unexpectedly had a greater impact on his retirement fund than his sporadic contributions to the investment portfolio.
We also considered that Finn had been under a considerable amount of stress since late 2015, and that the financial adviser had not met his duty to give Finn suitable financial advice.
Resolution
We recommended that the financial adviser pay Finn compensation to recognise that his advice had not been suitable in the circumstances. The financial adviser offered to pay Finn $4,000 to settle his complaint, which equated to roughly 80% of the management fees Finn had paid.
We thought the financial adviser’s offer was fair and reasonable in the circumstances. Finn accepted the financial adviser’s offer.
Insights for participants
As a financial adviser, you have professional obligations to give your clients suitable advice. Even when you know a client is struggling financially, it is essential to give them appropriate and accurate financial advice.
