Tremain Chris: Financial Advisers Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Tremain Chris: Financial Advisers Bill — Second Reading In Committee Third Reading 
[Sitting date: 23 September 2008. Volume:650;Page:18972. Text is incorporated into the Bound Volume.] 
CHRIS TREMAIN (National—Napier) 
: 
 Thank you for the opportunity to speak on the second reading of the Financial Advisers Bill. I pick up where my lead speaker Simon Power left off. He said that we are dealing with an industry where the losses are in the millions of dollars. I add to that by saying that the focus is not just on the industry where the losses are in the millions but more rightly so I think on the consumers who have invested in those businesses and who have lost multiple millions of dollars in the process. That is really where the focus of this legislation should be. At the end of the day this House stands to protect the rights of individuals in the community and to understand that there will always be risk in any investment across the range but that ultimately we should be there to try to protect consumers as much as possible in their decisions around investments. 
I want to pick up on the losses just to make it clear to people who may be listening to this debate on this Wednesday morning what we are actually dealing with. 
R Doug Woolerton 
: Not that many! 
CHRIS TREMAIN 
: Not that many! We are talking about $1.925 billion of losses which is significant. That was highlighted in the May  
Financial Stability Report 
. That is huge money. We are talking about $300 million out of Provincial Finance $459 million out of Bridgecorp $149 million out of Nathans Finance $187 million out of Capital + Merchant $127 million out of Lombard Group $141 million out of Geneva Finance and $319 million out of MFS Boston. This is huge money—$1.925 billion. These companies have gone into receivership or into moratorium over that period. There have been a few more since that financial stability report came out. By no means have all these companies fallen over because of shonky dealings—not by any stretch. It was due mainly to the credit crunch and not due to fraudulent activity. It is important that people understand that. 
Hon Lianne Dalziel 
: How do you know that? There are still investigations going on. 
CHRIS TREMAIN 
: I am saying that by no means did all of those companies fall over because of fraudulent activities. I think the Minister would have to acknowledge that. Certainly some of them did. The credit crunch has caused a run on funds. Many of those companies under the market as it was before had quite sound— 
Hon Lianne Dalziel 
: The failure of Bridgecorp caused the run in New Zealand. 
CHRIS TREMAIN 
: —just listen—balance sheets. Some of them have fallen over because of the credit crunch not because of fraudulent activities. A number of high-profile companies outside the finance sector have also recently gone into liquidation and I will talk about Blue Chip properties which have gone under in very dubious circumstances and are still under investigation. 
Hon Lianne Dalziel 
: What’s that got to do with the Financial Advisers Bill? 
CHRIS TREMAIN 
: A heck of a lot. The member will understand that many financial advisers actually recommended their clients to go into that company and that is whom we are trying to regulate. 
Hon Lianne Dalziel 
: Not any I know. 
CHRIS TREMAIN 
: No financial advisers that the member knows? A heap of them out there recommended Blue Chip properties. I ask the Minister what world she is living in. 
Hon Lianne Dalziel 
: No they were specific Blue Chip advisers. 
CHRIS TREMAIN 
: No there were not. Third party advisers were recommending Blue Chip. That is for sure. 
Hon Lianne Dalziel 
: Name one. 
CHRIS TREMAIN 
: I could do that but I think I would be breaching parliamentary privilege. I will not go there. I will not enter into that argument. Most of the investors were referred by way of a strong commission incentive and were referred by financial advisers around the country. 
A number of constituents have come to see me in my office about this particular issue. One woman whose husband died in the middle of the process had been encouraged to gear up her house to buy not one but two apartments. Recent valuations on two properties she owns show that if she sold on today’s market she would stand to lose the majority if not all of the equity in the property that she owns. She is faced with the liquidation of Blue Chip and no rent guarantee. She cannot afford the monthly commitments to mortgage costs and has therefore been forced to sell her apartments at a significant loss. 
Financial advice like that puts some people into very difficult situations. With all this contagion around the global financial market place the Government has seen fit to introduce a suite of legislation not to remove the risk from financial investments as there will always be risk but to raise the bar on those who enter the financial markets either to provide investment products or to proffer advice and to benefit from that advice by way of a fee or a commission. The Reserve Bank of New Zealand Amendment Bill (No 3) was the first in this suite of legislation. That bill addressed prudential requirements of the non-bank deposit takers and it was passed during the previous sitting period. National supported that legislation. 
The Financial Advisers Bill together with the Financial Service Providers (Registration and Dispute Resolution) Bill aims to address the regulation of financial advisers and to lift the benchmark and rigour around those who can be financial advisers their qualifications and the means by which consumers can seek to resolve disputes with financial advisers and those who provide financial products. The Financial Advisers Bill is being debated in its second reading today and quite clearly National supports it. 
The purpose of the bill which we will cover in the Committee stage is quite detailed in Part 1. The first purpose is to require disclosure by financial advisers and the second purpose is to require increased competency in the financial advisers who are proffering a range of products. Some advisers out there—and the Minister begs to differ with me on this—were proffering advice not only on financial products but also on some real estate investments in Blue Chip. The third purpose of the bill is to ensure that financial advisers are held accountable for the financial advice they give. 
The first round of submissions on the bill received much debate and we have covered that in the debate today in the House. The draft legislation hit the Finance and Expenditure Committee which my colleague Craig Foss and I are on and was ultimately thrown out. In fact as the Minister agreed it was totally amended. 
There are four key areas of change that I would like to address today in my remaining time. Firstly the bill now amends the coverage of the bill—whom it applies to and what is covered. Secondly the new legislation amends the Securities Commission which will now have the sole responsibility to undertake the regulatory oversight of financial advisers. As such it is proposed that the commission will be responsible for approving monitoring and having oversight of all financial advisers. The third area of change is to amend the bill in relation to statutory offences obligations and a penalty framework. I propose to spend the rest of my speech focusing on the coverage of the bill where there have been five significant changes to the bill as first mooted. 
Firstly the focus now shifts to financial products whereas the original focus of the bill was on financial decisions. We now have a definition which we will cover in the Committee stage for two categories of financial product: category 1 and category 2. There are effectively seven products that have been divided into two tiers of financial product. The seven products are complex securities investment broking savings or investment planning simple securities insurance credit and real estate. These are very important distinctions now because the complexity and level of risk that accompany these products are significantly different between each product. Some products at the higher end certainly involve a lot more risk and we believe more regulation needs to be provided for the level of advice given in the higher categories. We heard in the select committee process from many different submitters from the high end to the low end but it was in respect of those who provide financial advice at the lower end—the salesperson at the Noel Leeming store who is providing pretty basic advice under the Credit Contracts Act—that the level of financial regulation that we were initially looking to impose was really out of control. 
The second area of change is the adoption of a tiered approach to the authorisation of financial advisers which I have spoken on briefly. Effectively the products I have just described are broken into two tiers and there will be two levels of regulation that deal with those two tiers. 
Thirdly we are going to ensure that those providing financial advice on securities or investments savings and planning now become authorised financial agents. Members will see references to “authorised financial advisers throughout the legislation. An authorised financial adviser will be required to have certification to deal with tier 1 advice on tier 1 products. 
Fourthly in terms of changes to the bill we will be adopting certified financial institutions. Large institutions dealing with significant franchise networks will be able to apply to be a certified financial institution and effectively take responsibility for their advisers and make sure that they are imparting not only the knowledge but the responsibility and accountability for their advisers going forward. 
Lastly the amendments that relate to the scope of the bill will ensure that the bill provides clear and appropriate exemptions from the definition of financial adviser. I will use my time in the Committee stage to focus particularly on the exemption of budget advisers who originally were in the legislation but have now been taken out of it. Thank you Mr Deputy Speaker.