Kevin O'Neil is a 34-year-old authorised representative of Ask Us Financial Planning, a whole owned subsidiary of the Friendly Credit...

Kevin O'Neil is a 34-year-old authorised representative of "Ask Us Financial Planning", a whole owned subsidiary of the Friendly Credit Union. Ask Us Financial Planning has its own financial services licence and is a principal member of the FPA. Kevin is an associate member of the FPA.

Kevin is currently enrolled in the Certified Financial Planner® 1 (or CFP 1). The licencee and Managing Director of "Ask Us Financial Planning", Roger Andrews, informed Kevin shortly after he enrolled in the CFP 1 unit, that he would be adding the 'CFP' designation to Kevin's credentials on the new marketing materials to enhance the image of the financial planning business. Kevin was uncomfortable with the idea, pointing out to Roger that he has just commenced his CFP students and that therefore, it would not be the proper thing to do. Roger explained that it was just a matter of time before Kevin completed the CFP program and hence to avoid doubling up on costs and printing, Roger would include the CFP designation now.

Kevin has written $1.2m in new business this month and he needs to do another $200,000 of business to meet his monthly sales target, and to qualify to attend a sales conference in New Caledonia in two months time. 

Sara Black is also an employee of "Ask Us Financial Planning" and works as a paraplanner. She informed Kevin that she knows a lady called Shirley Watson who could be a good prospective client and that he should send a marketing brochure to here because Shirley has just inherited $400,000. Shirley Watson is 67 and retired, and has been a member of the Friendly Credit Union for 20 years.

Shirley made an appointment to see Kevin after he called her on the phone. She mentioned that she would be happy to chat because she read the brochure and noted that he was a CFP and this gave her "a great deal of reassurance."

At the appointment, Shirley explained to Kevin that she wanted advice on how to best invest the $400,000 she recently inherited from her aunt. She plans to pay for her granddaughter Pamela's wedding in two years time (approximately $100,000) and give Pamela a lumpsum for  for a deposit on a house (another $100,000). Shirley has never invested in anything other than term deposits with the credit union, and she is interested in an alternative investment strategy that will provide her with capital growth over the next two years.

Kevin sees this as an opportunity to meet his sales target. Kevin recommends that Shirley employs a gearing strategy - a strategy he has never recommended to other clients. The strategy involves Shirley using the inherited $400,000 and borrowing another $400,000 from the credit union. With the available $800,000, she would then invest $400,000 in CBA shares due to their recent strong performance, and place the remaining $400,000 in aggressive managed funds. The income from the investments would pay the interest on the $400,000 loan. Kevin points out to Shirley that this strategy is tax effective because the interest on the loan is tax deductible.

Kevin offers to set up a new savings account at the credit union for Shirley to deposit the inheritance. Any income earned from the CBA shares and managed funds would also be directly deposited into this account. Also, he will arrange for the monthly interest payments to be taken directly from this savings account. As a result, Shirley will not have to worry about making these interest payments herself.

Shirley likes the idea of the interest payments being taken "care of", however, she is concerned about borrowing money to invest, particularly to invest in shares. She has heard of many people losing their money from share investments and she tells Kevin that she "wants to grow her $400,000, not lose it."

Desperate to meet his sales target, Kevin reassures Shirley that even though managed funds and share prices fluctuate, shares will provide her with a better return than any other form of investment. In fact, he also has shares (he does not specify that he owns 5,000 CBA shares worth approximately $375,000) and has not lost money. Furthermore, he tells her that he had many clients similar to Shirley who are employing this gearing strategy and that he had no complaints.

Upon hearing these statements, Shirley decides that it must be a safe strategy. Also, Shirley has been with the credit union for many years and has been very happy with their friendly service. Furthermore, she remembers that the brochure she received states that Kevin is a Certified Financial Planner® , so he must know what's best for her. Shirley agrees to proceed with Kevin's recommendations.

Meanwhile, Sarah is studying the Diploma of Financial Services (Financial Planning). She is also a member of the FPA. Sarah prepares the statement of advice (SOA) for Shirley, and concludes that the recommended strategy is too aggressive for someone who has no prior investment experience and is seeking to invest for an investment timeframe of just two years. Sarah is familiar with Shirley from her previous administrative roles in the credit union and feels that Shirley's risk profile is probably too conservative for a gearing strategy.

Sarah approaches Kevin to discuss her concerns, but is told by Kevin to simply "prepare the SOA as requested". Sarah is surprised at Kevin's response, but decides to follow his instructions for fear of losing her job. Kevin does not advise Sarah of his CBA share holding, therefore this interest is not disclosed in the SOA.

Six months after implementing the strategy, Shirley contacts Kevin to notify him that her granddaughter has brought forward her wedding date and is getting married in two months time. Shirley now needs to withdraw  $100,000 and is hoping that there has been some growth in the investment. She remembers Kevin telling her that shares provide better returns than any other form of investment and that this strategy is "safe".

Kevin advises Shirley that as a result of an increase in interest rates, a decline in the CBA share price and the underperforming managed funds, her total investment (including the gearing) is now worth just $600,000. Shirley, shocked by this news, demands to speak with Roger.

Using the FPA's code of Ethics and Professional Practice, link the name of the person in the case study with the ethical code that has not been followed and provide a brief explanation of the facts (only three examples so I can understand what its asking) to illustrate the point.

Name of Person in the Case Study

Name of the relevant FPA Ethical/Professional Code

Explanation (brief explanation )