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Compliance not enough, warns lawyer

Financial advisers need to be aware of the difference between compliant and ethical behaviour in order to avoid negligence claims, a corporate lawyer has warned.

Rockwell Olivier managing principal Peter Bobbin told ifa it is crucial the financial services industry understands there are two compliance standards to meet under the law – one regulatory and the other obligation-based – and that both need to be met to avoid calamities.

Four years before the collapse of Storm Financial, Mr Bobbin was asked to review the company’s statement of advice (SOA) process, which was “very compliant” but highly unethical, he said.

“What Storm highlighted to us, and this still exists today, is that you can be regulatory compliant yet the customer is still able to sue for negligence,” Mr Bobbin said. “Why? Because they fundamentally did not meet their duty to the client.”

The 110-page Storm Financial SOA ticked all the boxes, asked for the client to initial each page and from a pure compliance point of view was “magnificently correct”, Mr Bobbin said. “But was it right and ethical for the client? Absolutely not.”

In order to avoid similar occurrences, Mr Bobbin suggests that financial advisers keep SOAs short – between six and 20 pages – which is more likely to achieve communication, as opposed to telling. 

“You can tell somebody or you can communicate – communicating is the objective,” he said. “The most effective advice I can give is that the SOA should be compelling, precise and brought to attention – that is the most appropriate SOA delivery objective.”


The comments follow the news that Mr Bobbin has partnered with My Dealer Services to provide compliance review services to members of the Association of Independently Owned Financial Professionals.