Dalziel Lianne: Financial Advisers Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Dalziel Lianne: Financial Advisers Bill — Second Reading In Committee Third Reading 
[Sitting date: 23 September 2008. Volume:650;Page:18965. Text is incorporated into the Bound Volume.] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Financial Advisers Bill be now read a second time 
. I would like to begin by thanking the Finance and Expenditure Committee in particular Charles Chauvel the chairperson of that committee and Simon Power the lead member for the National Party. I also thank all of the officials for the work they have done. We now have a bill in this House that will accomplish its objective of encouraging the sound and efficient delivery of financial advice which should boost confidence in the use of such advice. 
A number of comments have been made in the last few weeks—and indeed seconds—suggesting that the Government should slow the passage of this bill primarily because of the extent of the changes the committee has made. However I have personally made the effort to speak to or meet with as many of those people as I possibly could and I am confident that we now have a way forward with this bill. I thank the industry for sharing its expertise with me in order to help us get this right. As I said to the industry I did not want to lose the 6 months that a delay beyond the election would entail because those 6 months can be put to very good use. 
That being said I have taken on board the concerns expressed by those who fear that we may not have picked up everything. Given that a lot of the detail of the new structure will be included in regulations I have decided to establish a working group that will encompass representatives of the industry the Ministry of Economic Development and the Securities Commission to provide a feedback loop as we go forward. 
The committee has recommended changes to the bill that first focus on financial products in contrast to financial decisions as was originally proposed in the bill; second adopt a tiered approach to the authorisation of financial advisers that will provide two tiers of advisers category 1 and category 2 based on the complexity of the products they advise on and enable the adoption of a qualifying financial entity model which will ensure there is appropriate regulatory coverage of advisers within these institutions while minimising the compliance costs that would otherwise be associated without that model in place; and third ensure that the bill provides clear and appropriate exemptions from the definition of a financial adviser. 
The most fundamental of these changes is the adoption of what the committee has termed a tiered approach to regulation. The risk-based approach will see more complex advice such as advice on derivatives portfolio investment entity products and other complex securities or financial planning services subject to greater regulatory control than advice on simple products. These category 1 advisers will need to be individually authorised by the Securities Commission to provide financial advice. They will be known in the future as authorised financial advisers. 
This does not mean that advisers who advise on simple products will be totally unregulated. Rather the bill provides that advisers namely those who are providing advice on products such as consumer credit contracts and insurance products must comply with basic conduct and disclosure requirements. They will also be required to be registered and be members of a dispute resolution scheme and that is dealt with in another bill that we will be dealing with before the House rises. 
The third category of adviser will be employees or agents of a qualifying financial entity and I envisage that they will be banks and insurance companies credit unions potentially and other organisations such as building societies—that sort of thing. The qualifying financial entity status will be granted to those institutions that have appropriate processes in place to ensure that any employees or agents covered by that status operate appropriately. These entities will be able to meet all of the registration and disclosure obligations on behalf of their employees and agents and indeed the membership of the dispute resolution body as well. However employees who are category 1 advisers or agents working for those institutions or working to them will still need to be individually authorised. That means they will have to be authorised financial advisers individually authorised by the Securities Commission. This will ensure that there is a level playing field between advisers who work for such organisations or to such organisations as agents and those who operate independently. 
The most fundamental change proposed by the committee was one signalled early on in the process and that is the proposal to shift away from the approved professional bodies co-regulatory model which I announced nearly 2 years ago. The committee has recommended that the Securities Commission undertake all regulatory oversight of financial advisers. I agree with that and as I have said on more than one occasion now the co-regulatory model could not have survived the level of mistrust and anger that exists amongst an investing public who feel they have been betrayed. I wish that was not the case but it is the case and that is why we cannot go forward with anything that signals any form of self-regulation in this environment. In my view such a proposal at this time would not be sustainable. My regret is that I was not alert to this issue before the Financial Advisers Bill was introduced. 
Some industry organisations raised concerns about their ability to undertaken the disciplinary functions that were contemplated for approved professional bodies in the bill as it was introduced. If it had ensued that industry organisations did not have the capacity to undertake the necessary disciplinary functions the Securities Commission would have been required to act in the place of approved professional bodies anyway. This would have required the commission to adopt an approach that catered to the diversity of standards that may have emerged across the industry. This in itself would likely lead to increased transaction costs for both the industry and the regulator. The approach we have adopted in the end aligns with the approach taken in respect of other occupational regulatory regimes in New Zealand including the regulatory framework for accountants lawyers real estate agents electrical workers and architects which means it is better placed for trans-Tasman mutual recognition as well. Although some commentators have claimed that this would result in the loss of industry expertise and the development of rules I believe that the committee has come up with a sensible and workable solution to alleviate this concern as well. The committee has recommended that a commissioner of financial advisers be appointed to the Securities Commission with the front-line focus of the commissioner’s work being on financial advisers. 
A code committee and a disciplinary committee will be established under this bill as well. Both committees will obviously need to include advisers with industry experience. This will allow industry representatives to be involved in the promulgation of the professional code of conduct to govern authorised financial advisers and the discipline of the profession. I think the select committee has done a good job of ensuring that we get the best of both worlds. Further the code committee will obviously be obliged to consult with advisers more broadly and with other stakeholders when developing the code. 
In conclusion I reiterate my gratitude to the industry especially to those who came to talk to me about their concerns; and to the Finance and Expenditure Committee. Again I single out Charles Chauvel as an excellent chair of that committee and Simon Power. They were both excellent to work with. The other thing I place on record is that I have really appreciated the fact that where there were concerns people came and talked to me about them and we were able to address them in a sensible way. I also congratulate the officials who worked long hours well beyond the call of duty and the parliamentary counsel officer assigned to work on the bill. This bill represents an extraordinary effort and a very good outcome. I commend the bill to the House.