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:18990. Text is incorporated into the Bound Volume.] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Financial Advisers 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 be. 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 would not survive the loss of confidence in the sector which is the inevitable fall-out of finance company failures. It was necessary to make significant changes during the select committee process. At this point I again express my thanks to members of the Finance and Expenditure Committee and officials who have engaged with the industry the wider sector and the public. I also acknowledge the Opposition’s commitment to working with the Government on finding a solution to these issues. In particular I acknowledge Simon Power who has been open about concerns and we have worked together to resolve them. I commend the whole committee’s engagement with the industry and its willingness to listen and make such changes at a late stage. I am confident that the committee has produced a bill that is far more practical and suitable for its purpose.  
Specifically I support the bill’s new focus on financial products in contrast to financial decisions and the development of the two-tier approach to authorised financial advisers and other financial advisers advising on category 1 and category 2 products. The bill enables the adoption of a qualifying financial entity model to reduce compliance costs for institutions with a large number of advisers as well. 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 just place on record here that in the legislation itself the definition of financial advice uses the words “recommendation” “opinion” or “guidance”. These are words that need to be read together; one follows from the other. “Guidance” does not simply mean setting out options for people then to take advice on or make a decision on. I want to make it absolutely clear that citizens advice bureau advisers will not be captured by the definitions in the legislation.  
I will not go over the details of the legislation again. Suffice it to say that the bill’s passage today will ensure that the election period can be put to good use by officials from the Ministry of Economic Development 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 that it is a much-needed sector because we all need to be able to rely on advice in order to be guided to make good investment decisions where we do not have that expertise ourselves.  
I will make two more statements that again cover issues that have not necessarily been raised in this debate. If people are taking advice from an adviser now I urge them to use one who is a member of a professional organisation that can hold that adviser to account. But I warn them not to use that advice as a proxy for their right to know the details of the investments being made and the level of risk they are exposed to. The Securities Commission has a good range of information available and I do ask people to use it. It provides good advice including the advice not to be afraid to say no if the level of risk is outside people’s risk appetite.  
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. That is why the Government has committed to the National Strategy for Financial Literacy led by the Retirement Commissioner engaging as it does with the private sector and the non-governmental organisation sector as well. At the same time the companies that have taken 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 are seeing 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 those companies and clients and it is their duty to identify the risk profile of their clients and to do the homework their clients cannot be expected to do—work up a balanced portfolio read any prospectuses identify where the risks are ask whether 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 prospectuses or who could not have foreseen the domino effect of the flight to quality that followed the initial failures.  
In conclusion I believe that the Financial Advisers Bill now meets the objectives I set for it when it was first introduced. It brings financial adviser regulation into the 21st century aligns us with international best practice and provides for an appropriate level of investor protection in New Zealand. I commend the bill to the House.