Published 25 April 2012
Propertytutors Ltd owner Sean Wood has lost his appeal against the Financial Markets Authority’s refusal to approve him as an authorised financial advisor.
Under the new financial markets legislation, being a registered financial advisor (which Mr Wood is) is not enough for anyone wanting to offer advice on complex investment products such as securities, futures contracts or land investment products, known as category 1 products. To advise on them, an advisor must be authorised (an AFA versus an RFA).
It was the first appeal against a decision to decline authorisation and arose out of a seemingly small matter after Mr Wood bought a Manurewa house site unseen several years earlier.
The authority declined his application in October 2011 after he failed to disclose convictions under the Building Act in 2008, and Wellington District Court judge Stephen Harrop dismissed his appeal in a reserved decision on 13 April. Judge Harrop said in his decision: "Mr Wood’s failure to disclose convictions and, more importantly, the fact of his conduct behind the convictions and his attitude to compliance with the law, mean that he is not of good character such as is required to be an authorised financial advisor. "The Financial Markets Authority quite properly came to the conclusion, in effect, that the adverse inferences it could & did properly draw as to his character meant it could not be satisfied that he would comply with the onerous documentary, ethical & fiduciary obligations with which an authorised financial advisor must comply."
The judge commented: “In short, Mr Wood’s view, even now, that the Building Act convictions should not be seen as bearing on his good character in any way adds weight to the FMA’s view that they do.” The authority’s head of primary regulatory operations, Sue Brown, said it was important that applications to become an authorised financial advisor were assessed rigorously: "The Financial Advisers Act seeks to promote high standards of professionalism & integrity. FMA’s role is to ensure that applicants have the insight, knowledge & attitude necessary to uphold & respect those standards."
Mr Wood was fined $15,000, and his company Citylink Properties Ltd another $15,000, for unconsented building works and failing to comply with a council notice to fix non-compliant work carried out by a previous owner of the investment house he bought. In his approach to the application to become an authorised financial advisor, Mr Wood said he didn’t see the fines as being a criminal matter and they certainly didn’t entail jail terms.
Judge Harrop said a first offender of otherwise good character who pleads guilty is entitled to a sentence well below the statutory maximum. But he added: “If Mr Wood thinks the offending under the Building Act was not especially serious, then presumably he must have the same view about offending under the Financial Advisers Act, given the similar penalties.”
Mr Wood said he hadn’t gone through the new advisory regime guide & guidance note “with a fine toothcomb” before completing his application. This admission made his position worse, in Judge Harrop’s eyes: “This in itself is disturbing and gives rise to proper concern as to his likely level of assiduousness in completing the onerous tasks & ongoing responsibilities required of an AFA….
“Even a relatively cursory reading of the AFA guide makes it clear the convictions under the Building Act should have been disclosed and that it was reasonable for the Financial Markets Authority to have expected them to be disclosed….
“As if that were not enough, there is a clear statement in the guide that the Financial Markets Authority expects information suggesting a lack of willingness to comply with legal obligations or regulatory requirements to be disclosed, and the same applies to involvement in negligent, deceitful or otherwise discreditable business or professional practices. The Building Act convictions clearly meet those criteria as well.”
The judge accepted the submission of Financial Markets Authority counsel Justin Smith that concerning aspects of Mr Wood’s character emerged from his failure to disclose the convictions & subsequent correspondence with the authority: “Mr Wood was motivated throughout the entire proceeding by a desire to maximise his investment and, in order to do so, was prepared knowingly to breach council requirements.
“He, at least by implication, chose not to comply with the council’s notice to fix because he regarded it as too costly. In short, his attitude to the issues raised by the council was assessed by him on a cost:benefit basis.
“Mr Wood revealed a tendency not to take responsibility for his actions; he said that his guilty plea was for practical reasons rather than because he was truly responsible. He blamed the council for being difficult to deal with and painted himself as a victim both of the council’s attitude and poor representation by his solicitor, as well as failures on the part of his property manager and non-compliant work carried out by the previous owner.
“Mr Wood either did not regard compliance as necessary or at least merited because of the extent of other non-compliant work in the area. In short, he appeared to have the view that if the law was not being honoured by others, why should he comply with it?”
Mr Wood (50), of Helensville, is a director of Citylink Investment Trustees Ltd, Citylink Properties Ltd, Citylink Property Masters Ltd, Citylink Securities Ltd, Property Teachers Ltd & Propertytutors Ltd. He worked as a real estate agent in South Auckland from 1992-2003, also acquiring property of his own, and from 2004-08 was a consulting mentor to Richmastery Ltd (wound up 2008, by which time it was called Entrepreneurs Success Centre Ltd; directors were Phil Jones & David Hows). He’s run his own property education & advice company, Propertytutors, since 2009.
He said in an affidavit in the court case the services Propertytutors offered had been severely curtailed pending determination of his appeal. The company’s role is to educate paying members of the public about investment in Auckland real estate. Mr Wood said he’d stopped all marketing for new business in May 2011.
Link: District court decision
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Attribution: FMA release, judgment, story written by Bob Dey for the Bob Dey Property Report.