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Dalziel: Financial Advisers Bill 3rd Reading

Financial Advisers Bill 3rd Reading Speech – Minister of Commerce

I move, that the Financial Advisors Bill be now read a third time. The progress of the Financial Advisers Bill has not been as easy as I first thought it would. The failure of a string of finance companies last year brought me to the conclusion just before Christmas last year that the Bill as introduced was not the best way forward. After advice from industry, I concluded that the co-regulatory model would struggle with the disciplinary workload that could arise, and it would not survive the loss of confidence in the sector that was the inevitable fallout of the finance company failures. So it was necessary to make significant changes during the Select Committee process.

At this point I would like to again express my thanks to the members of the Finance and Expenditure Committee and officials who have engaged with the industry, the wider financial sector and the public. I also wish to acknowledge the opposition’s commitment to working with the government on finding a solution to these issues. In particular Simon Power has been open about concerns and we have worked together to resolve them. I would like to commend the whole Committee’s engagement with the industry and their willingness to listen and make such changes at a late stage. I am confident that they have produced a Bill which is far more practical and suitable for its purposes.

Specifically, I support the Bill's new focus on financial products, in contrast to financial decisions as was originally proposed; the adoption of a tiered approach to the authorisation of financial advisers, to ensure that those providing financial advice on complex products such as securities, or financial planning, are approved as “Authorised Financial Advisers” (AFA), while those providing advice on simple products such as insurance or term deposits, must comply with basic conduct and disclosure requirements and must be registered and be members of a dispute resolution scheme. The Bill enables the adoption of a “Qualifying Financial Entity” (QFE) model to reduce compliance costs for institutions with a large number of advisers; while ensuring there is appropriate regulatory coverage of advisers within these institutions. Finally, the Bill provides clear and appropriate exemptions from the definition of a financial adviser so that people offering budget advice, for example, are not captured by this legislation.

I will not go over all the details of the Bill again in detail. Suffice it to say that its passage today will ensure that the election period can be put to good use by officials from MED and the Securities Commission and by the industry as a whole to inject the detail into a regulatory framework that should reinvigorate a much needed sector.
I say it is a much needed sector because we all need to be able to rely on advice in order to guide us to make good investment decisions where we don’t have that expertise ourselves. And here I will make my two statements that I have made as I have travelled the length and breadth of New Zealand – if you are taking advice please use an adviser who is a member of a professional organisation that can hold them to account; but don’t use that as a proxy for your right to know the details of the investments that are being made and the level of risk that exposes you to. The Securities Commission has all the information you need about the questions you should ask questions, but the most important of all is don’t be afraid to say no.

The second issue is the question of financial literacy – we can build a strong regulatory framework as we have done with this Bill, but inexperienced investors must still understand basic financial principles such as risk and return. And that is why the government is committed to the National Financial Literacy Strategy led by the Retirement Commissioner, engaging as it does with the private sector and the NGO sector as well. At the same time the companies that take in the hard-earned money of people who have saved over a lifetime owe a duty of care not to abuse the trust that has been placed in them. New Zealanders who have lost money or whose funds are frozen are disgusted by the flaunting of wealth by those who have left behind them a trail of devastation. Corporation law was designed to protect entrepreneurs from personal liability so that they could take risks without facing financial ruin every time an idea did not pay off. But to see people driving around in Porsches and living in luxurious mansions when others see their life savings go up in smoke creates challenges for those of us who defend the underlying principle. It is a disgrace and they should be ashamed.

Financial advisers stand in between and it is their duty to identify the risk profile of their client and to do the homework that their client cannot be expected to do – work up a balanced portfolio, read any prospectuses, identify where the risks are, ask if the risk is appropriately priced and be alert to the potential motive behind higher than usual commissions. It is very easy in this climate to blame all financial advisers, but I warn against imposing too high a standard on those who were faced with misleading prospectus’ or who could not have foreseen the domino effect of the flight to quality which followed the initial failures.

In conclusion, I believe the Financial Advisers Bill now meets the objectives I set for it when first introduced. It brings financial adviser regulation into the 21st century, aligns us with international best practice, and provides an appropriate level of investor protection in New Zealand. I commend this Bill to the House.


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