On the same day David Ross appeared in court for almost the last time, the Financial Markets Authority (FMA) released a 22-page document designed to plug holes in the system the disgraced financial adviser was able to exploit.
In its 'Guidance note: Discretionary investment management services [DIMS]', the FMA lays out a series of principles and procedures authorised financial advisers (AFAs) should follow if they offer such a service.
The FMA guidance note, published just about a year after Ross and his eponymous firm, Ross Asset Management, hit the headlines, is the result of a long consultation with the industry and the final version differs somewhat from the draft.
For instance, the regulator's note says it has refined "the examples of DIMS including a new example of what is not DIMS at the AFA level".
The DIMS exemption for AFAs applies to 'model portfolio' recommendations executed via investment platforms (also known as wrap accounts).
As the FMA describes it, in a model portfolio "client's money is invested into a specific selection of investments and in pre-determined proportions, and is automatically re-balanced from time to time, to reflect the wrap provider's model portfolio", without instructions from the AFA who may have recommended it to the underlying client.
"In this case the wrap provider is providing a class DIMS to the client," the guidance note says.
As the practice is reasonably common in the industry, many AFAs would be relieved by the clarification.
For those AFAs involved in the full DIMS process, however, the regulator now requires some very detailed compliance, including hiring an independent custodian and carrying out extensive checks and disclosures.
In a simple flow diagram headed 'The DIMS life-cycle', the FMA splits the process up into three components, starting with the innovatively-titled 'client on-boarding', which, as I understand it, is not related to 'water-boarding'. Parts two and three are called 'the DIMS proposition' and 'ongoing service', respectively.
While the guidance is aimed at AFAs, it also provides a useful checklist for DIMS clients, who may be interested in what their advisers get up to.
As well, the FMA tightens another loophole that Ross apparently took advantage of, where clients were labelled as 'wholesale' or 'eligible' investors and therefore outside the better-lit retail world.
Under the guidelines, AFAs now must work a bit harder to ensure 'wholesale' or 'eligible' clients understand their categorisation and the consequences of opting out of retail protections.
"If a financial adviser or broker is not satisfied with a client's reasons for providing an 'eligible investor' certificate or has reason to believe that it is incorrect, the Act requires that the certificate must not be accepted," the FMA note says. "The Act includes penalties for accepting a wholesale certificate in contravention of these requirements."
David Ross has been remanded in custody and is due for sentencing on November 15.