Power Simon: Financial Advisers Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Power Simon: Financial Advisers Bill — Second Reading In Committee Third Reading 
[Sitting date: 23 September 2008. Volume:650;Page:18977. Text is incorporated into the Bound Volume.] 
SIMON POWER (National—Rangitikei) 
: 
 I have to confess that I may have misled the House during the second reading of the Financial Advisers Bill. I made the statement that advisers had told the House that only three clauses of the original bill would remain in the event that matters were completely redrafted from start to finish. Now that I have had a closer look at the bill it seems there are only two: clauses 1 and 2. In the bill as reported back to the House it now seems that pages 9 to 70 have been struck out with a fresh start being made on page 70 with clause 3 relating to the purpose of the bill which is of course what we are here to discuss in the Committee stage today.  
If we work our way through Part 1 and I know we are anxious to take a few calls—not several calls but a few calls—on each part as we work our way through the bill we find that the stated purpose “to promote sound and efficient delivery of financial advice and to encourage public confidence in the professionalism and integrity of public advisers” is a pretty good summary of where we are at today. As I said in the second reading it is impossible for any legislature to attempt to pass legislation to eliminate risk and nor should a legislature attempt to do such a thing because risk goes hand in hand with return. But this legislation seeks to require disclosure by financial advisers in order to ensure that decisions about whether to use a financial adviser are informed. It requires competency on the part of financial advisers to ensure that this advice is available to investors and consumers requires that they have the necessary experience expertise and integrity—I am not quite sure how one legislates for integrity—to effectively match a person to a financial product and requires that financial advisers are held accountable for financial advice that they give.  
Those are three broad and meritorious statements. The point of the three of them is that where an investor approaches a financial adviser and seeks advice on a financial product whether it be a simple or complex product or where an investor seeks advice on a more complex financial transaction that is to do with for example reverse mortgages different superannuation schemes and property investment companies the idea is that a certain level of disclosure and a certain level of competency should be available to the investor at the time that that advice is sought. The purpose clause attempts to capture the essence of the following: it is not the intention to legislate to prevent the loss of money in investments because that would have the outcome of putting the Government into the position of being a guarantor effectively of investments and that is not the way that markets work nor is it appropriate for Governments to find themselves in that position. But investors are entitled to a degree of advice and competency from those from whom they seek advice so that they are put in a position where they are best able to make decisions.  
What we heard at the Finance and Expenditure Committee was quite interesting on some days. On one particular day I recall the committee receiving a submission that went something like this: there were some financial advisers who were not disclosing the commissions that they were receiving when a particular product was sold but worse than that where they were conceding that a commission or a benefit was accruing to them if a particular product was sold not all of the benefit from or the discount on that product selection was being passed on to the investor. In fact on some occasions we were told a portion of that benefit was being retained by advisers themselves. We found at that point that the legislation needed to be broad enough to make sure that disclosure did cover off those sorts of situations.  
I think the other important thing about the disclosure regime is that even investors who consider themselves to be quite skilled and thorough—investors who may have a legal background or may have been in Parliament for some time—and who go along to their financial adviser out of a sense of nervousness to make sure that their investments are all in the right place and have sufficient protection would find themselves in an unenviable situation if they were confronted with a 5 or 6-page document to sign on the spot. What we need to avoid with this legislation is the situation where investors are put in that situation and told: “This covers that stuff. Just sign here and everything will be fine.” Even the most careful and confident of investors would not want to be confronted with that type of paperwork at that time prior to receiving the advice and feel as though they must execute those documents.  
This legislation has to avoid that situation occurring and I am sure the Minister in the chair the Hon Lianne Dalziel will give us an assurance in that regard. The legislation has to avoid the situation where an investor is simply presented with a wad of documents told to sign them on the spot before financial advice is given or received and then that in effect releases the financial adviser from any of the obligations contained in this legislation. The short question to the Minister is can a financial adviser contract out of the provisions of the legislation by presenting the investor with a disclosure document that the investor executes at the point the advice is received and are we making sure that pushing on the investor at the time that financial advice is offered will not create any problems for the investor at that point? I think we are all keen to know exactly how in practice the Minister sees that particular set of circumstances working because the last thing we want to do is to put in place a necessary and comprehensive piece of legislation to deal with financial advice and then find from day one that the financial adviser can simply contract out of it or assume that those obligations are discharged on the spot because a particular document has been executed. We will be interested to receive the Minister’s advice on that point.  
Let us move then to clause 5 “Interpretation”. We see that “document” is well defined there as is “Commissioner for Financial Advisers”. I say that is an exceptionally good idea and one that National is supportive of. Although “financial adviser” is defined in Part 1 the definition refers to “section 8” or clause 8 of the bill which is slightly further on. That definition warrants some attention at this point but before I come to it I just point out that Part 2 deals with financial advisers and their disclosure and conduct obligations but the definition of “financial adviser” is contained in Part 1 just in case members are concerned about that.  
Clause 8 states: A financial adviser is an individual who performs a financial adviser service …”—yeah right! That does not really clear very much up. Clause 10 defines a “financial adviser service” as one performed by a person who gives financial advice makes an investment transaction or provides a financial planning service. So I have one more question for the Minister and it relates to the definition of “financial adviser service”. When we were on the select committee we heard about the distinction between financial advice and opinion. I note that the reference to opinion is not contained in the definition of “financial adviser service” and I would be interested in hearing from the Minister on the issue of an opinion that is given by a financial adviser. Clause 11 defines when a person gives financial advice. I presume that financial advice is—oh here we go. Clause 11 states that a person who gives financial advice “makes a recommendation or gives an opinion or guidance”—I take it all back Minister; it is crystal clear there—“in relation to acquiring or disposing of … a financial product.” So that issue is covered; I give my apology to the Minister.  
But we look forward to hearing from the Minister about the signing of documents at the point of investment advice being sought and what that means for any downstream effects or for the protection that the legislation may offer.