Tisch Lindsay: Financial Advisers Bill — First Reading 
Tisch Lindsay: Financial Advisers Bill — First Reading 
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LINDSAY TISCH (National—Piako) 
: 
 Late last year under urgency this Parliament passed the Financial Service Providers (Registration and Dispute Resolution) Bill. The bill that we have before us tonight is the Financial Advisers Bill of 2007 and the commentary that has come via the Bills Digest suggests that these two bills the one I previously mentioned that went to select committee last year and this bill should form one new Act. I am not going to go into the pros and cons of that but there are certainly some similarities between the two. National supports this bill going to select committee and the need to establish a co-regulatory regime for financial advisers where the Securities Commission and industry-based approved professional bodies to be known as APBs will work together to create and monitor standards for financial advisers. The industry-based approved professional bodies will be front line day-to-day regulators while the Securities Commission will be responsible for the oversight and maintenance of standards of approved professional bodies and for ensuring the overall health of the sector. 
National agrees that there needs to be an update to the legislation governing the activities of financial advisers. However it is impossible to eliminate risk from financial decision-making so a balance must be struck between minimising risks for investors and minimising the costs to investors. Legislation is not the only response to minimising the risks of financial investment; improved financial education and literacy need to be a part of improving New Zealand’s investment culture. 
The range of financial advice in related services captured by this legislation is much broader than previously. However there needs to be caution to ensure that the providers of simple or uncontroversial services do not incur undue costs. In researching some background to this I note that in Singapore the Monetary Authority of Singapore sought amendments to its Financial Advisers Act back in October of 2007. The key features of that review for which submissions were sought were implementing a perpetual licensing regime for capital market services and financial advisers licence holders replacing the current licensing framework for licensed representatives and exempt representatives and replacing the Financial Advisers Act with a new representative notification framework. Even countries that are very versed in financial matters look to review their legislation from time to time. 
With the finance company collapses over recent months and the likelihood of more the question is whether this bill actually addresses the real issues. The extent of economic and social harm from deficient financial advice will not be fixed by this bill in its current form. Many large and small investors who have suffered financial loss as a consequence of bad advice. Many of these investors are elderly and have lost life-savings after being given advice by so-called financial planners. 
The move to approved professional bodies which will be a regulatory regime may sort out some of the rogues. However if we look at the genesis of this bill we see it goes back over 4 years when the issues I have just raised were not as paramount as they are today. If we were to look at a bill today and start from scratch I am sure we would see a different type of bill one that moves to protect the investor through a regulatory framework that would address the major deficiencies of financial adviser disclosure law and the compulsory disclosure of advisers’ fees and commission. 
This would enable the investor to identify any economic incentives that the financial adviser may incur and may gain from the advice he or she has been given. At the moment advisers have to disclose their position only if the client requests disclosure and many people do not know that they have that ability to do so and subsequently do not ask. The law requiring compulsory disclosure comes into effect on 29 February of this year. 
There is also a need for a banning orders regime against breaches by financial advisers. That would give investor protection and if we look at the Australian model the Australian Securities and Investments Commission has done exactly this for cases identical to cases that have recently occurred in New Zealand—yet we do not have that provision in this bill nor has it been envisaged. As part of the select committee process which we welcome because we are supporting this bill to the select committee there may be the opportunity to tighten up and to give that sort of protection that I mentioned before. 
The purpose of this bill should be to protect the mum and dad investors who may not have the financial acumen to make the right financial decisions so they become very reliant on advice from the so-called advisers and there are many of those. Some of them I have to say have been quite unscrupulous and we are seeing the results of this today with so many businesses falling over and so many people who have been caught in that trap. 
Many people who lost money because of breaches of and by financial advisers were in fact prudent savers. They had saved for many years. And now in the latter years after they have invested possibly their superannuation or possibly the money put aside for a rainy day with people in whom they had trust and confidence those people have been found wanting. 
There are many cases where confidence has been breached and abused and there has been no desire to make reparations. In fact I do not know of any cases where there has been a requirement for a financial adviser to make reparation to someone who has lost money. National will support this bill to select committee but we will be looking to strengthen the safeguard for innocent investors.