Financial Advisers Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
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.] 
Financial Advisers Bill 
Second Reading 
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. 
SIMON POWER (National—Rangitikei) 
: 
 Thank you Mr Assistant Speaker— 
Hon Darren Hughes 
: Oh Sarah Palin! 
SIMON POWER 
: What does that member’s billboard look like! I take this opportunity to thank the Minister for her opening remarks. It seems that the Hon Lianne Dalziel and I ended up with two of the most complicated and difficult pieces of legislation to work on—this bill and what is now the Commerce Amendment Act—over the course of the last 12 months. As I said also in the debates relating to that Act the Minister has always been forthcoming has made advice available and has been pretty open-minded on the whole when I have made suggestions during the course of the development of this legislation and I am grateful for that.  
One or two things do need to be said in respect of the opening stages of this bill. First of all the Minister has been generous in her praise of the officials and I certainly share that view when it comes to the enormous amount of work those people on the committee did in the initial phases. But in fairness and in no way reflecting on the Minister who I think did her best in the initial stages I say that the first draft of the legislation that was put before myself and others—and to be fair probably before the House—was poor. It was not up to scratch. 
Hon Lianne Dalziel 
: Fundamentally flawed. 
SIMON POWER 
: The Minister is prepared to say that it was fundamentally flawed and good on her for saying that! Quite frankly the legislation showed so many different drafting styles within the one bill that to the outside eye it was obvious that personnel and staff had changed during the course of the development of that first draft. It was hopeless legislation. It would have meant that the way financial advice was defined and the way that financial advice was captured was so random—for want of a modern term for the sake of the Hon Darren Hughes—that big holes would have emerged instantly in different areas of financial advice. I think—and this is a personal view—that the first draft of the legislation that we looked at did not bear that good a resemblance to the original recommendations under the review of financial products and providers done by the ministry. To be fair to the Minister when those issues were raised with her she took them on board and asked those officials for some changes.  
It became clear early on that trying to define advice by occupation was simply not going to work. That meant for example—and I know the Minister tires of me using these examples but it is my 10 minutes—that if a bank teller standing behind a counter told a customer who had $10000 in a savings account that the money should be put on term deposit the bank teller would have been caught for giving financial advice. If a real estate agent put an advertisement in the paper to say that a rental property was currently returning a 5.7 percent yield on investment in rent and that that was what it would continue to return should the property be purchased at the current price in my opinion that would also be financial advice. If a travel agent told a customer what insurance product the customer should purchase for his or her trip that would be financial advice. We may not think about it in those terms and frankly for nine out of 10 people purchasing travel insurance it probably would not have made the slightest bit of difference. But for the one out of 10 instances where someone in the family ends up ill—and I myself have been in this position—what is given in the advice and what is contained in the insurance policy does matter. But again that is financial advice because it will have an immediate financial implication on what a traveller can or cannot do based on the wording of the policy.  
So then the Minister decided that we would try to look at it from a product perspective which I thought was a more sensible approach. It became clear though that even within that approach trying to create a layered level of differentiation and differing regulatory environments depending on the level of advice or product—whether it was simple or complex—provided its own difficulties. In that case it would have been difficult to provide an overall framework that then allowed those more distinguished categories to fall underneath it. This was where the beauty of the select committee process was so helpful. On the first day of the select committee hearing the chairperson of the committee Charles Chauvel decided that he would allow everybody 10 minutes speaking time—he had negotiated with me; there was nothing wrong with that. But it became clear after we had heard a 35-minute submission from the first submitter I think from memory—it was certainly well over 20 minutes—that we would have to use the submission process to try to rewrite the bill. So at that point as submitters were coming forward I and others on the committee—the Hon Paul Swain was there; I remember that clearly because he had his disc with his CV on it on the table—started negotiating in a way that put ideas on the table at the time for submitters to comment on. That was a bit unfair to the submitters because they had not come prepared for that type of approach. But I think in the time I have been here it was one of the most constructive discussions we were able to have. Then we decided that an interim report was appropriate in the first instance and then extraordinarily—in my time here I cannot remember this happening before—a second interim report would be made to the House consequently driving further consultation with the industry which was absolutely essential because of the massive changes being made.  
I remember sitting in the committee one day and the poor chap from the Parliamentary Counsel Office was sitting opposite. We said at that time: “OK if we were to make these changes how much of the existing legislation would remain in place and how much would you have to redraft?”. He said we could keep the first three clauses. At that point we knew we had a big job on our hands—a big job on our hands. But to be fair to parliamentary counsel and to the officials on that committee who were just stunning in the way they approached it we managed to get the job done.  
I do not think that the job is finished. I still think there will be a much more subtle refining of the categorisation of financial product as time goes on and I think that the flexibility around the regulatory regime at that level is important. That will develop and mature as time passes. I hate to say it but I do not think we have seen the last of a discussion about financial advisers legislation. I still think we will have to refine it as we go along. Having said that I say that National certainly supports this bill in its second reading and believes it is an extremely good step in the right direction.  
When we come to the detail of the bill in the Committee of the whole House—the financial accreditation—the Securities Commission as the sole regulator is a model that is absolutely correct. The Securities Commission should be the sole regulator. I believe that that is absolutely the right move but I will talk about it in more detail during the Committee stage. 
Before we move to the Committee of the whole House—and I know there will be other members in the House who will want to make a contribution—I say that I was very interested to hear the Minister of Commerce talk about a working-group being set up for further discussion. I think that is a good move. I believe she said that industry representatives representatives from the Securities Commission and officials from the Ministry of Economic Development would be involved. When we get to the Committee stage I will be interested to know whether we will have any investor representation on that working-group—in other words whether we will hear what the users of those people who are providing the product would be looking for. I would be interested in any comment the Minister might want to make in that regard.  
We are dealing with an industry that we can talk about having losses or funds at risk in the billions. This is an extremely serious matter. It is a matter that the National Party will not delay during this urgency motion because we are keen to give a signal very early on as John Key did when he wrote to the Prime Minister many many months ago to say we would work with the Government in a bipartisan way on this issue. I was then dispatched to deal with the Minister of Commerce and this matter has been dealt with in a bipartisan way. Sometimes in politics issues are too big for political discourse and this is one of those issues. We have an obligation as a Parliament to ensure the security of our financial markets. This is a step in the right direction. We will deal with the detail in the Committee stage. National will support this legislation.  
R DOUG WOOLERTON (NZ First) 
: 
 I will take just a short call to say New Zealand First supports the passage of the Financial Advisers Bill. As the Minister of Commerce and Mr Power have said this bill is long overdue. A few financial advisers and people who came before us in the Finance and Expenditure Committee thought there should be no more regulation around their activities. They believed that their business was a fast-moving one and that the people they were talking to could judge in their own best interests whether the advice they were given was good or bad. Obviously we disagreed with that and so did the majority of the people involved in the industry. It was heartening to see that with a few exceptions people had a responsible attitude to the proposed legislation and were keen to help.  
We have also heard from the two speakers earlier that a lot of changes have been made to the bill. In fact when we look at the bill we see there are many pages of ruled-out text with new text following that. That is the way it should be. It is not until we come face to face with the participants in the industry not just the ones chosen to help officials through the process of preparing the legislation—although that is a good process as well—but the ones who are actively involved day to day with their customers and until we hear about their problems the distinctions they have to make and the care with which they have to approach these issues that we can actually get a full handle on the situation. I also agree that refinements will be made to the legislation in years to come. It was admitted during the hearing of submissions that every time new regulation comes into force somebody out there will find a way around it that is not in the clients’ interests and that will need to be blocked off in the future.  
There were days years ago when the Government of the day believed that there was no need for any of this regulation and that both those who were seeking help with investments and those who were giving advice on investments could go about their business without any need for the Government to be involved in those transactions in any way whatsoever. We have come to rue the day when those thought processes were the rule rather than the exception and we are now seeing something rather nasty start to happen in this country of a similar nature to what has occurred elsewhere. In America we are seeing the Government has had to hop in and prop up institutions where the people involved were not in fact qualified to know what was going on and did not know what was going on but proceeded without any caution nevertheless.  
Just as with any other industry the public have a right to know whom they are talking to when they seek financial advice. They have a right to know the qualifications of that person the experience of that person and whether that person has been involved in any shonky dealings hitherto.  
Hon Darren Hughes 
: Like John Key. 
R DOUG WOOLERTON 
: I could not possibly comment. This legislation provides some of those assurances. I have to say just before I sit down on this part that it will not take away the risk to the public. It cannot do that and it is not professing to do that. But it will give the public an indication of whom they are dealing with and in another bill an avenue to redress the situation as well because this is part of a suite of bills.  
I say New Zealand First supports the Financial Advisers Bill and we will be supporting the other bills that surround this issue.  
Dr PITA SHARPLES (Co-Leader—Maori Party) 
: 
 Tena koe Mr Assistant Speaker tena tatou katoa. The Maori Party is pleased to support the Financial Advisers Bill to enable a clear distinction to be made between financial advice that carries significant risk for consumers and advice that carries minimal risks. The intention of the bill is honourable but the bill is well overdue.  
An analysis of 25 financial advisory firms by Stephenson Thorner and fi360 Australasia released earlier this year concluded that many financial advisers may look trustworthy but are potentially risky. The risk factor is all around the concept of trust. The study showed that most New Zealand advisers ran their businesses with an inadequate duty of care. In fact the study went as far as to say their reports verged on becoming dysfunctional. Just how dysfunctional some of the sharks in the industry have been is old news now given the fact that more than a dozen New Zealand finance firms have gone under in the past 18 months. That is nearly $2 billion of investors’ money gone down the tubes. It is not in dispute that something had to be done. There have been frequent and increasingly urgent calls for tighter Government controls to tidy up the sector and make it more accountable to investors.  
It is not as though we have not been down this road before. Many of us remember the mortgage scandals of the mid-1980s when an unregulated sector of the finance industry extracted millions of dollars from what could only be called unsophisticated investors. That is a flash name for what the industry calls mum and dad investors: a segment of the population including Maori who have been investing their savings without necessarily realising the risk— 
R Doug Woolerton 
: Most of the population. 
Dr PITA SHARPLES 
: —yes—that they were exposing themselves to. In the 1980s the contributory mortgage companies screwed millions of dollars from New Zealanders lured by the promise of a quick buck and high interest rates. The classic was Registered Securities Ltd (RSL) which when it collapsed in July 1988 had ratcheted up loans to the sum of $97.8 million. Overnight more than half of that was deemed to be irrecoverable.  
But there is a startling difference between the contributory mortgage companies and the risk of the non-regulated financial companies and financial advisers. Back in mid-1988 when RSL hit the bottom of the market the then Minister of Justice Sir Geoffrey Palmer immediately took decisive action by amending the Securities Act. His amendments covered contributory mortgages and introduced sector-specific regulations yet here we are 20 years later finally getting around to introducing regulations to increase prudential standards—a move we support but action that should have taken place a lot earlier than it has.  
The point is we are not talking about people getting sucked into the Nigerian multimillion-dollar banking scams. Members know the type: “A tragedy has befallen us. Your long-lost Uncle Nigel has drowned leaving you as the sole benefactor of his estate. All we need is your bank account.” Everyday New Zealanders—the mythical middle New Zealanders—are being stung here. We are not talking about businesses or corporates; everyday citizens have been placed at risk. We are talking about the people whom successive Governments have ignored: humble trusting investors many of whom have entrusted their life savings to finance companies. Their lives have been turned inside out by the callous squandering of their funds. Worse not only do they have to endure the shame and guilt of having their funds squandered but also they are literally powerless and unable to afford the cost of legal advice.  
The Maori Party has always stood up for people who too often are voiceless in the corridors of power and our support for this bill is no exception to that. Sure the bill is a good thing. The regulatory framework should promote confidence and participation in the financial markets by investors and institutions. That is all positive. But what about those who have been burned by financial advisers and who are teetering on the brink of collapse? What measures have been put in place to look after their interests? Will the Securities Commission launch an inquiry into how those large-scale losses were able to occur? What support will be available for clients who have lost money to enable them to launch court proceedings against financial advisers who have been negligent?  
The issue all comes down to the basic truths around justice and the nature of power. One of the tikanga of the Maori Party around kaitiakitanga encourages us to promote the active exercise of responsibility in a manner that is beneficial to resources and the welfare of the people. In everyday language that means we promote the goals of living in a society where crooks and shonky advisers are not welcome. In other words there should be sanctions in place to ensure that those types of people—people who are negligent in their responsibility to care for the resources and collective good of their community—are not able to prosper.  
One could say as the  
National Business Review 
 has said recently that there have been sanctions against murderers and robbers for centuries but society still has not been able to eradicate such crimes. But for my money I want to live in a society where careful analysis and prudent assessment of risk are routinely part of the package for any financial deal where credibility and experience matter and where an individual can make an informed judgment about the qualifications and professional standing of a financial adviser before leaping in. In reality Maori businesses do not usually use finance companies to finance their business developments. The interest rates are too high and often security is required over land so it is a no-go area. Banks are more likely to secure loans over cash flow stock equipment and machinery without having to rely on putting our whenua at risk.  
The Maori Party will support this bill. We think it provides changes that are necessary to allow deposit takers to be better monitored and evaluated and at the end of the day that has to be better for the nation and for all our people in moving forward. But notwithstanding all the regulations approvals enforcement and remedies included in the scope of the legislation the key to success will rest in the conduct obligations outlined in the bill. The bill specifically obliges financial advisers to act with integrity and competence. Integrity cannot be regulated for but it nevertheless must be a foundation in order for the changes to actually work. We need to have protection for consumers and we need to have the changes provided in this bill in order to ensure an effective environment operates.  
Finally although we support this bill at these final readings we wonder why it was separated out from a bill that is on the Order Paper to come up later the Financial Service Providers (Registration and Dispute Resolution) Bill. Surely logic would demand that the two bills be read together to ensure due focus on the health of the sector. Thank you. 
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. 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to continue the National speeches in support of the second reading of the Financial Advisers Bill. Colleagues have talked about the suite of bills—and I am sure that the Minister of Commerce covered it; I missed her speech—that hold hands with this particular bill: the Reserve Bank of New Zealand Amendment Bill (No 3) and the Financial Services Providers (Registration and Dispute Resolution) Bill. It is all good stuff and quite timely—even more timely now I guess given the condition of and events in the financial markets since this bill was referred to the Finance and Expenditure Committee on 19 February 2008. 
There is one thing. My colleague Mr Tremain gave the example of someone caught up in the current crisis and I heard someone from the Government side of the House—I do not know whose voice it was—say that real estate agents are exempt from this bill. Yes real estate agents are exempt from this bill but that comment showed the incredible naivety and the lack of financial literacy of whoever it was who shouted it out. The commentary on the bill talks about “category 1 products (complex products such as a security other than …”. The bill excludes property quite explicitly—that is right. But if members look at the cause of the current subprime mortgage crisis around the world they have to ask what a subprime mortgage is. It is not the initial transaction of purchasing a property for sale; it is the ongoing leverage or de-leverage of the financing of property. That is what a subprime mortgage in the United States is. Investors around the world including some in New Zealand have been caught out by lending on property with a somewhat dubious valuation and perhaps associated transactions and fees. So yes those investments in property are affected by the intent of this bill; they will be caught up by it. 
At the end of the day it is all about asset classes be it hard assets such as property the derivatives of property or financial instruments down the chain. They will all be picked up. Property is explicitly excluded here in the first instance but if we go down one or two generations of any transaction of any of the current crises we see that the core asset devaluation the core deflation of those balance sheets is about property. Yes those investors might not be the initial owners of the property but if we look down the titles we see that they are guarantors and there is cross-party lending on the titles. Yes this bill and the other two bills pick up some of those issues but let us try to talk sensibly about the financial markets. 
I have here the first version of the bill which was referred to the select committee. I notice only one Government member of the committee here and I am looking forward to her speech on this bill. The bill that was referred to us on 19 February 2008 and the bill that we have before us are a credit to the process but goodness gracious me the first 70 pages of the original version are struck out—the first five parts are totally gutted struck out rewritten. That is a good reflection of the process which Simon Power alluded to—well done. Yes we acknowledge the Minister and her ambitions to have good robust and long-lasting legislation—we fully appreciate that—but we went through a fair few hoops on the way to get there. Who is to blame? I do not know. Perhaps those who were involved in the first draft needed a bit more input from the real world. What we see before us now is a better reflection of the real world because it is a reflection of the risk of investments and advice and that is entirely what financial markets are about. They are about the pricing applications and return—reward—of risk rather than individual occupations individual products etc. As Mr Power said earlier there is still some work to do but this bill is a good start. I am pleased to have been able with my colleagues on the select committee to contribute to the bill before us now. 
My colleague Mr Power also made the point about travel agents. I remember during the submissions process asking about travel agents and we seemed to park that issue saying that it was just travel agents and insurance. But we made the point that many people ask their travel agent when they should buy some foreign exchange. They say they are going to the United States and they ask whether they should buy US dollars now or in 6 months’ time when they go there—and we have all seen the volatility of the foreign exchange markets. The travel agent’s response qualified as financial advice; the travel agent is doing his or her best and maybe is just reading something off a computer screen but under the original bill that information would have constituted financial advice. There are myriad different examples like that from the hire purchase example in the commentary to the car salesman who offers advice on which loan to take or even which deposit to make—a 3-month a 6-month or a 12-month one—if the rates for each one are the same because as those with some financial literacy will know they are not actually all the same. 
My colleagues have spoken about the current conditions in financial markets around the world which are under major stress. I think about $5 billion is either frozen or very very stressed within New Zealand. But I acknowledge that New Zealand has many robust institutions—banking and non-banking—that are performing very well and their depositors’ funds are very very safe indeed. I acknowledge those institutions and I appreciate the tough times they are having as they search for funding and capital. 
I would like to make the point that the original bill was referred to the select committee on 19 February 2008 and the closing date for submissions was 4 April 2008. As submission after submission came in goodness gracious me it was pretty obvious by that stage that the bill would need amending. So there was the first interim report and the closing date for submissions on it was 16 May 2008. Then the second interim report came out and that is pretty much what we have before us today and the closing date for submissions was 22 August 2008. I sat in on many of those submissions and there were common themes. As I said before I acknowledge the path that this bill has taken to get to the more realistic and real-world form that it is in now but again I question why it needed to take such a tortuous and long path in the first place. It was almost an example of real-time submissions and bill-making as Mr Power alluded to earlier. Engaging with the submitters was a very healthy process. They knew their stuff and for a lot of it they knew it better than many of the members sitting round the committee table did. 
It is interesting to have this example because at least better legislation come out of the select committee process. Imagine if that process had been extended to the Electoral Finance Act which was raced through under urgency prior to Christmas last year. That legislation is creating all sorts of problems. Imagine if the same process had been extended to the emissions trading scheme bill. A thousand amendments to that bill were not submitted on and another 785 amendments were made to the bill that arrived back in the House. A total of 1785 amendments that had not been submitted on were raced through the House under urgency. Even KiwiSaver was in the same bucket. Good legislation does take good select committee time but most members would acknowledge that they are on a select committee to at least make legislation as good robust and long-lasting as possible. 
During the Committee stage I will be picking up a few points. My colleague Chris Tremain picked up that about $5 billion is under stress at the moment within New Zealand. Some of that is because of allegedly fraudulent and dodgy activities but much of it is from the market going against the investors—whatever they were. We have to distinguish between the two because the Serious Fraud Office the Securities Commission and the police are investigating many of those instances right now. 
I again make the point in this House that in the current environment—and I am sure the Minister said the same thing—with the stress in the financial sector now is a terrible time to be getting rid of the Serious Fraud Office. This bill is forward-looking—it is not retrospective—but at least we have the Serious Fraud Office to look at alleged misdemeanours that this bill cannot address yet the current administration is trying to wipe that office off the face of the earth. What an absolutely absurd time to do that with the stresses and the strains that the financial markets are under! 
I look forward to the Committee stage. I look forward to robust speeches from the other side; as we are sitting under urgency they must urgently want to speak. I will speak again in the Committee stage.  
Bill read a second time. 
In Committee 
Part 1Preliminary provisions  
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.  
CRAIG FOSS (National—Tukituki) 
: 
 It is with great anticipation that I rise to speak in the Committee stage of this bill. I would like to touch on clause 6 “Act binds the Crown”. Obviously the Crown is exempt from the regulations around this bill. But firstly I shall turn to clause 3 the purpose clause. 
Clause 3 states: “The purpose of this Act is to promote the sound and efficient delivery of financial advice and to encourage public confidence in the professionalism and integrity of financial advisers by”. I was thinking somewhat laterally as I do about a situation in which the Crown were to give financial advice then to renege on that financial advice—and I know that the Crown is exempt from this legislation. I give the example of the “chewing gum tax cut” where people were given advice in a Budget they made financial decisions and plans based on that advice then the Minister of Finance reneged and took the “chewing gum tax cut” off the table. I would be interested to hear the Minister in the chair the Hon Lianne Dalziel make any comment at all on that matter. I know that it is a lateral thought but if the public are to have confidence in the financial services industry as is outlined in the purpose clause then surely they need first of all to have confidence that the regulator the Government of the country will be true and hold to its word. 
I turn to the interpretation clause and the definition of “advertisement”. It is plainly obvious that it is some form of communication. We recently had an example in Wellington that is not addressed by this bill or the disputes bill but may fall under the Commerce Act I guess. An organisation had a billboard outside its retail outlet offering funds at 8 percent interest and at the bottom of the advertisement was the statement “8 percent p.w.”—per week. Most people who went in there to borrow money had no idea what “p.w.” meant. In fact 8 percent interest per week compounded amounts to thousands of percent per annum. Under the Commerce Act that organisation was being quite open because the billboard stated “p.w.” but the people using that service did not have the financial literacy to know what it meant. Perhaps we need some more financial education in the public domain in our schools—and probably in Parliament. 
I go back to a point I made before. Someone was interjecting on one of our previous speakers who was speaking about real estate. I note the definition of “category 1 product”. Whoever interjected said that real estate is excluded but the definition states that “category 1 product” means “any estate or interest in land for which a separate certificate of title can be issued …”. There you go! That is a derivative because someone can own the land can use it as a guarantee can use it as collateral can use it as security and way down the chain someone can borrow against it to buy a car—someone whom the landowner has never ever met. There may be three people in the chain. That is why real estate is a category 1 product. I would be interested to hear the Minister clarify that. I do not whether she was the interjector. I give her the benefit of the doubt—perhaps she was not.  
Complex derivatives etc. are also category 1 products. The definition refers to futures contracts or any other contracts that may be specified along the way. The crisis we currently have in the financial markets is in and around those complex products. Events that occurred initially in New York and Cleveland are affecting people right down here in New Zealand. Unfortunately or fortunately that has been part of the global financial system we are in. 
In looking at clause 5 “Interpretation” I point out the obligations of financial advisers and who they are. As earlier speakers have noted they are not liable for the return on any investment as long as everything is declared upfront and disclosed be it a category 1 product or a category 2 product. That is all well and good but we must distinguish what they are because in these current times when New Zealand is in a recession many people are looking at the advice they were given. They need to determine whether they were given the full information and if they were not given it whether that impacted on the return on their investment. Someone may advise someone else to invest in say Australian equities and that adviser may forget to give that person the relevant foreign exchange advice. As I said earlier it is all about risk. 
I would be interested to hear other members speak about trust accounts. I refer to the definition of “trust account records”. Under this bill we interpret “trust account records” to mean “records relating to a trust account; and (b) includes any information that relates to a trust account and that is recorded or stored by means of any tape recorder computer … and any material subsequently derived from information so recorded …”. As we all know and without going into the detail interpretations of trust accounts and what goes through them—the interpretation of them—and the impact on not only the trustees but the beneficiaries of those trusts declared or otherwise is a very pertinent issue before this House and before the public right now. On issues like that the public has to have full confidence that the legislators in this House abide by the same rules that we ask the public and the financial advisers for whom we are regulating to abide by. We should put ourselves under the same microscope and regulation that this bill will put the financial sector under. Thank you Mr Chairman. 
The CHAIRPERSON (Hon Clem Simich) 
: The question was that Part 1 stand part and we have— 
Simon Power 
: I raise a point of order Mr Chairman. I am sorry for interrupting when you are just about to take the vote but there were a couple of questions and one in particular that I had asked the Minister in the chair the Hon Lianne Dalziel during my contribution on Part 1. They related to circumstances where financial advisers were asking clients to sign documentation relating to disclosure. I just wondered whether before you put the vote in order to keep the Minister’s contribution in order she would be prepared to offer me some advice on that matter. 
Hon Lianne Dalziel 
: Part 2. 
Simon Power 
: Part 2? 
Hon Lianne Dalziel 
: All the disclosure is in Part 2. 
Simon Power 
: OK well I am happy to wait until Part 2. 
The question was put that the amendments set out on Supplementary Order Paper 253 in the name of the Hon Lianne Dalziel to Part 1 be agreed to. 
Amendments agreed to. 
Part 1 as amended agreed to. 
Part 2Financial advisers and their disclosure and conduct obligations  
SIMON POWER (National—Rangitikei) 
: 
 This is a slightly more complex area than Part 1 and one of the most interesting measures in this part is clause 12. Clause 12 relates to when a certain person is not performing a financial adviser service when giving advice or doing a transaction. Of course my colleague Craig Foss would have noted that real estate agents are mentioned in clause 12(g). I am not sure whether that is a desirable policy outcome but I would certainly be interested in what other members think on that issue. Likewise although we are fully supportive of the legislation as members know I am not 100 percent sure that also excluding lawyers and chartered accountants is a particularly good policy initiative in the sense that in much of the work that I recall doing as a lawyer during the short time that I had in that job there was certainly a financial component to the advice that was given on a reasonably regular basis. I am sure that is equally so or more so in the case of chartered accountants although I have never been in that profession.  
One thing that is particularly interesting about clause 12 is the very important inclusion of a person providing free budgetary advice as part of a budgetary advice service offered by a non-profit organisation. As is so often the case at select committees some of the most powerful submissions that came before the Finance and Expenditure Committee were not from the big business organisations or the big unions but from the individuals who come before the committee. One particular individual whose name I am afraid escapes me came before the committee to express her concern that budgetary advice offered by citizens advice bureaus or similar sorts of budgetary services would on a reading of the bill be caught by its provisions. I think that the inclusion of clause 12(k) is an extremely important one given that we certainly do not want to put people who are giving voluntary budget advice into a difficult position when they are undertaking what is essentially an unpaid voluntary community service.  
Other people are included of course in the category of non-performance of financial advice services such as teachers lecturers journalists or State services employees who give advice in the course of working in those occupations as are a Minister of the Crown and a member of Parliament—both in the course of performing their duties in those respective roles. As I have said the list includes a lawyer a chartered accountant a tax agent a real estate agent a member of the board of a Crown entity a Crown organisation the Reserve Bank a person providing free budgetary advice and an employee giving advice to or making an investment transaction on behalf of his or her employer.  
There are some references to KiwiSaver investment transactions and the offerer or target company in the course of a takeover. That is quite an interesting little inclusion there. In particular the choice of words in clause 12(p) is I think quite odd because we are saying that a person does not perform a financial adviser service if the person is “an independent adviser giving advice in the exercise of that person’s functions under the Takeovers Code”. The use of the language in the first part of that sub-definition would make one think on first reading it that that is exactly the type of person who is supposed to be captured by this legislation. The Minister is shaking her head so no doubt we will hear from her on the issues relating to the Takeovers Code that need the provision of a special exemption.  
Then there is the case of a person giving general commentary relating to a financial market. Again that is quite an interesting little definition because we could have regular columns from financial advisers where one would write in and ask say: “Dear Mr Foss I have $10000 sitting in a bank account. What is your recommendation? Should I put it into KiwiSaver or should I use it to pay my increased ACC levies?”. In that case with regard to the response that Mr Foss gives in the media—hypothetically of course—I would need to be convinced that the definition of general commentary is enough to exclude the appropriate general comments made about the nature of some of these investment schemes. But of course if one of these commentators makes the remark in passing that today the ASB is offering 9 percent over 30 days. as opposed to the BNZ offering 8.75 percent over the same period of time and offers no specific advice in respect of those two current products on the market I ask whether that steers an investor in a particular direction by its nature or inference or whether it is general commentary thereby excluding itself from that definition. 
I suspect—and others in the National Party have said this during the second reading debate—that some areas of refinement will still be needed in this area after the election regardless of who sits next to you Mr Chairman during the Committee stage of that refinement. I wonder whether we have made that provision certain enough. I see that the officials are busy chatting about these matters and I would be interested to know exactly where we are heading with that particular point.  
It is also interesting to note— 
Mark Blumsky 
: That’s a good point. 
SIMON POWER 
: I thank Mr Blumsky. We will miss that sort of input when the member leaves! The other thing I am interested in is clause 13 “Meaning of financial advice clarified”. Interestingly in financial advice we do not include a prospectus an investment statement an authorised statement a bank disclosure statement a document or documents issued in lieu of a prospectus or investment statement or a disclosure statement. One of the things I am interested in is the role of the corporate trustee when it comes to the process for having discussions about financial advice. The Minister knows because we have shared the platform on one occasion recently at a financial advisers’ conference that I am a bit keen to look at the front-line regulator the corporate trustee and make sure that its obligations and its role as a front-line regulator are being exercised in an appropriate way to ensure that investors get the full picture. So we want to make sure that clause 13 does not let the front-line regulator off the hook and I would be interested in receiving some guidance on that.  
I will leave it there in terms of Part 2 of the bill but I am keen to make a short contribution on the remaining parts. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I thank the member. I think that this is an appropriate time for me to do the mea culpa. People have asked who is to blame for the quality of the original bill as introduced and I accept full responsibility for that. But there is one thing that I will say in defence of the line I took in terms of the occupational approach. 
Simon Power 
: I wasn’t blaming you. 
Hon LIANNE DALZIEL 
: Other members made certain comments so I thought I should accept responsibility. The point I want to make is simply this: if I had introduced a bill with a very narrow focus nobody who ought to have been covered by this bill would have put their hands up and said: “Excuse me you’ve left me out. Please include me.” By including everyone by having a really broad definition those who were not appropriately covered by this legislation were very quick to put their hands up and say: “Please take me out.” I still think that that was a good process in terms of getting everyone’s attention focused on who should be covered by the legislation. I do agree that shifting from the individual occupation to the type of advice they are giving based on the product and the financial services planning or the financial planning approach is absolutely the right way to go.  
I just draw the member’s attention to the Supplementary Order Paper because there are some changes here that have picked up on some of the omissions. One is in respect of registered valuation where obviously there could be potentially the giving of financial advice as a necessary incident of that work so we have included that as well. We have picked up on the issuers and trustees. 
Simon Power 
: Excluded that one as a financial adviser. 
Hon LIANNE DALZIEL 
: Excluded—excluded. We have also picked up on the question of issuers and trustees although I think that the point the member raises about the trustees the front-line supervisors is a very real one and it is part of the next stage of the Review of Financial Products and Providers which we have already announced is being held back a little while we do some further work arising very specifically out of the finance company failures of the last 2 years. There is further work to be done with regard to the front-line supervisors. We have already announced some of the original decisions that were taken but I have made the statement publicly that there is further work to be done in that area.  
In respect of the budget advisers I was very very concerned to make sure that budget advisers who help people who are struggling to cope on minimal levels of income would not be caught by the Financial Advisers Bill which is about protecting people from the risk of losing their life-savings when they have money left over to invest. I wanted that dividing line to be even clearer than as reported back from the select committee so we have actually picked up some concerns that have been raised by the citizens advice bureaus. So now the clause will exclude people giving advice or making an investment transaction in relation to a category 2 product or providing a financial planning service taking that in the broader sense if the advice is given the transaction is made or the planning service is provided without charge in the course of a service offered by a non-profit organisation. So that really should clear the decks for those people to feel comfortable that they can just get on with the job of providing that support.  
The third area I should highlight is the question of an employer providing assistance to an employee with the implementation of a decision to acquire or dispose of a financial product made available through the employee’s workplace. Not all workplace superannuation schemes will be KiwiSaver for example so I think it was important to focus more broadly on employers giving supportive information in order to assist the implementation of decisions that their employees make.  
In respect of the comment made by the member in relation to the Takeovers Code I should make the point that yes I know the language does sound difficult and we do speak of financial advisers not including independent advisers giving advice but the people who are appointed to enable people to make decisions as to whether to accept offers in a takeover situation are appointed under the Takeovers Act. Their independence is assured by that process and the question around disclosure is covered by the independence that operates under the Takeovers Act. It is all monitored by the Takeovers Panel and I think that is why it is excluded here. They do not have to go through having to disclose all of their situation under this particular legislation.  
Simon Power 
: So it’s not designed to exclude investment bankers. 
Hon LIANNE DALZIEL 
: It is not designed to exclude investment bankers but this is a particular function that they have under another Act.  
The last thing I want to comment on is the question of disclosure. I draw the member’s attention to the provisions of the bill which talk about disclosure having to be in the form required by regulation. I think that that is one area about which I want to give the member some comfort. I remember going to a meeting of financial advisers which included some of the representatives from the Australian industry. They talked about the number of pages that had been increased by the particular regulatory framework they had adopted over there. I have asked my officials to make sure that when they do this work on these regulations—and subsequently on the changes they will be making in the Securities Act area which will cover investment statements—they make them short and simple in plain English and make them very accessible to those who are seeking to rely on them. The last thing we need is to have complex difficult documents. We want people to be able to access the level of information they need.  
I think it is very important in this environment where we have advisers being paid by way of commission from the people who are selling the products that people have not only the information about the nature of that commission but also a comparator with those other commissions that might be available. Unless people know that their adviser is being paid a lot more to offer them a particular product over and above something else and all the other issues that the member raises then I think it does not address the fundamental flaw that exists in the current arrangement. This bill is designed to address that and I know that members of professional organisations now—and this is why I always recommend that people use financial advisers who are covered by professional organisations—require their members to disclose this information up front already. At this stage people do not have to wait for the legislation if they use people who are members of professional bodies. 
CHRIS TREMAIN (National—Napier) 
: 
 I want to pick up on what the Minister was speaking about during the commencement of her speech. She felt that the process she had undertaken had been a good one in terms of spreading quite a large net in a catch-all situation and then expecting people to put their hands up to say: “No leave us out of this process.” I want to discuss it in terms of the danger of bureaucracy which is something National bangs on about in terms of bureaucracy creep and getting down to people who should not be involved in unnecessary regulation. I guess no more can it be said for the budget advisory community which is referred to quite well in clause 12(k) whereby budget advisers are exempt under the auspices of this legislation. I think it is important to understand that initially budget advisers clearly came within the catch-all of the Act. As the Minister has quite rightly said these are the people in our communities who deal with people who do not have a lot of money such as beneficiaries who might have only a couple of hundred dollars week in week out to work with. I am talking about citizens advice bureaus and in my own electorate of Napier the Napier budget advisory service that is run by two or three volunteers who sit up there in Community House. I am talking about the Napier Family Centre budgeting service which has a number of volunteer budgetary advisory people.  
They deal with members of our community who do not have a lot of money to rub together. We are not talking about the investment of life-savings of $20000 $300000 or $400000 into different investment categories. We are talking about people who have had a pretty tough life and are struggling to make the best of $200 or $300. This bill initially looked to encapsulate the budget advisers within the legislation and to put regulation around them. Funnily enough one of the first submissions that came to the table was from the budget advisory association. This association supported the legislation and said that its members should be a part of the additional regulation. I could not believe it but that is what it said. But back in our electorate offices we were getting visits from budget adviser volunteers saying: “Crikey we don’t need this sort of regulation. If we have to be accredited it’s going to mean that we will need continuing professional development and there will be costs involved.” Quite frankly a whole lot of volunteers will leave this service and it will not be available to some of these hard-working Kiwis.  
Then the Minister said she was keen to get rid of it. But actually I say to the Minister one of the first amendments to the clause that came back from the officials was that budget advisory services would be exempt but only those funded by the Ministry of Social Development. I do not know whether the Minister remembers that particular clause but that is what came back from the officials in the first instance. It was the National members of the committee I have to say who put up their hands and said: “Look this will get rid of all the people who are involved in the voluntary sector.” As long as it is not for profit that clause has to change. We felt it was important that the voluntary sector was exempted totally and I am pleased to see that happen.  
People often bang on about National going on about bureaucracy but this is the type of bureaucratic creep that we get through this type of legislation and that is just crazy. Certainly it is not necessary for volunteers in the voluntary sector.  
I will give another good example. I was up in Mahia the other day with the volunteer firefighters. Volunteer firefighters are now required to have New Zealand Qualifications Authority qualifications for goodness’ sake! We are almost getting rid of the good Samaritan opportunities in our community and that is just crazy. We have to make sure that we allow volunteers whether they be budget advisers or firefighters to continue to do their work without massive bureaucratic creep and without additional costs. It is important that the officials consider those volunteers out there and the work they are doing and that they do not unduly bring a whole lot of additional bureaucracy into it. I saw that happening firstly with the budget advisers. We are not axing them. We will take out only the budget advisers who are funded by the Ministry of Social Development and then finally all budget advisers will be totally exempt. Thank you Mr Chair. 
The question was put that the amendments set out on Supplementary Order Paper 253 in the name of the Hon Lianne Dalziel to Part 2 be agreed to. 
Amendments agreed to. 
Part 2 as amended agreed to. 
Part 3Authorised financial advisers and qualifying financial entities  
SIMON POWER (National—Rangitikei) 
: 
 This is the part that attempts to deal with how to define authorised financial advisers and qualifying financial entities. I think that it is the most elegant part of the legislation but it is an extremely tricky thing to legislate for and the officials are to be congratulated on coming up with such a neat way of categorising advice in such a short period of time. This is essentially the part of the bill that creates the tiered approach if you like and National is supportive of that approach as we modestly suggested throughout the process that such an approach would be appropriate. 
One thing about institutional accreditation still sits in the back of my mind. I am pretty sure although I stand to be corrected by Charles Chauvel or any other member of the committee who was there at the time—in fact the officials might be able to correct me directly through the Minister—but I think it was Sam Stubbs from Tower who came before the committee and made a comment that went something like this. When it comes to dealing with a professional after something has gone wrong and what I think he termed the eye-to-eye conversation across the kitchen table has been had with that individual about the particular advice or product—in fact I think he drew a parallel with a dentist if I recall correctly—the responsibility should lie with that individual in the event that the financial advice has proved to be inadequate or inappropriate. That issue has sat for the last 2 or 3 months at the back of my mind—a reasonably crowded and cluttered place for it to sit over the last 7 or 8 weeks— 
Hon Mark Burton 
: It’s such a small receptacle. 
SIMON POWER 
: I say thank you to Mr Burton. I will miss those sorts of comments after the election although I am sure it was meant in good humour as all of the member’s comments have been over the last 9 years. 
In the situation where that individual who sat across the kitchen table gave financial advice to the person concerned—after a level of trust was built between them and discussions occurred; it was that personal connection that saw the investment decision triggered—we do not want to create a regulatory framework that sees that individual escape responsibility or escape accountability because he or she happens to belong to a large organisation that is institutionally accredited for the range of advisers who come under its umbrella. I think the submitter who raised that issue raises a fair issue. We cannot afford to have a group of financial advisers structure themselves in a way that sees that grouping being given an accreditation at an institutional level and thereby inoculating its individual salespeople financial advisers representatives and financial planners from any direct accountability or responsibility for the very nature of the trusting relationship that that one-on-one discussion built. 
That is the only question the only comment and the only thing on which I seek feedback from the Minister in Part 3. Thank you. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I am happy to respond to Simon Power’s comment on accountability and say that that is the reason why the qualifying financial entity approach that has been adopted in the Financial Advisers Bill is as the member himself described such an elegant solution. It says that the qualifying financial entity which is required to meet a standard in order to have that status acquired through the Securities Commission takes responsibility for defining who falls on either side of the line. On one side of the line we have the ones who are to be individually authorised and therefore individually accountable like any other authorised financial adviser. On the other side of the line we have the category 2 advisers who are dealing with the lower-level products based on that risk assessment. I think that is a neat way of allowing the institutions to take responsibility for employees and agents who are operating to sell essentially products that are in that lower-level risk category; the higher-level advisers will be required to be authorised financial advisers.  
To go back to a comment another member made about the sequence of events around budget advisers I say that is a very good example to use to explain how we have got to this particular position. When we started off by defining people by their particular occupations we ended up in a situation where budget advisers necessarily were included in the definition because it was so broad. We are trying to bring that back but at the same time we are very mindful of the fact that if we exclude an occupation then all of a sudden people will redefine themselves as budget advisers instead of financial advisers in order to avoid coverage which is why we tried to link it to the funding from the Ministry of Social Development. That was not the best mechanism. The select committee came up with a better one and I am grateful to it for that. Then the officials and I have come up with an even better one which is the one in the Supplementary Order Paper.  
But that is the exact point I am making: that the qualifying financial entity actually taking responsibility for dividing the two groups—one requiring the individual authorisation of the Securities Commission and the other coming within the responsibility of the qualifying financial entity—is I believe the best of both worlds. We get really good coverage and we get that eye-to-eye contact for those who have made bad professional judgment. 
CRAIG FOSS (National—Tukituki) 
: 
 I thank the Minister of Commerce and acknowledge those points. I agree with the qualified financial entity part of this bill—Part 3. It is another part that was totally rewritten and for the better as we have all acknowledged. I have some questions though—and perhaps I need to read somewhere else—about the qualified financial entities. 
Many of the submitters particularly the larger players are already doing something along those lines anyway so the burden is not huge. They operate across many jurisdictions and therefore need to keep control and account of who is doing what everywhere. In this mobile world where one can call a local bank and end up talking to someone overseas keeping control does become tricky and the bill acknowledges that we can go only so far here in New Zealand. 
Among the three obligations and responsibilities of qualified financial entities that are mentioned in the bill—and I agree that the Securities Commission having that call is exactly right; it is the gateway of all things regulatory around financial markets along with the Reserve Bank; I think it is a good fit—is to ensure that staff are authorised. Most of them took that on board particularly the larger ones. They do not really have a problem with it because all their staff are authorised in some way shape or form in order to get into the building to use their websites or to do whatever it might be. 
They are also obliged to provide a list of names to the Securities Commission and to keep that list up to date. I would be interested to know what “up to date” means. I had a quick look at the definitions and I did not see it there. Common sense would say it meant quarterly reports or something like that but it could cross a financial year or it could be an entire cycle. What is up to date for one qualified financial entity operating here in New Zealand on its own may be different from what is up to date for a qualified financial entity that is incorporated here but is essentially overseas owned. Is there consistency of timeliness? I am sure the Securities Commission would give encouragement and guidance but perhaps it is one of those areas that the select committee could have defined a bit further. I am open to be advised that the definition is somewhere in the bill. 
My colleague Simon Power pointed out earlier that all of us here agree that the single regulator model of the Securities Commission—leaving the expertise in that place—is very good. The bill acknowledges that a Commissioner for Financial Advisers will be appointed. The commissioner will be a member of the Securities Commission and that is all very well and good. I presume that more funding will be required to enhance whatever operations it does. 
Also in this part—and I acknowledge the foresight of this provision—is alignment of the fines outlined in the Securities Act those in this bill and those in the Financial Service Providers (Registration and Dispute Resolution) Bill which I assume we will be talking about this week. There will be consistency across the sector and that takes away the ability for someone to do regulatory arbitrage to exploit one piece of legislation over another—to do fine arbitrage if one likes. In this bill as it was first drafted there was the possibility of five industry bodies and one person could have moved around the other bodies. 
National members are voting for this bill and this part. We endorse where it has got to now. We endorse the consistency of it and the recognition of where the expertise lies in this particular sector. I think it is very good. I acknowledge the qualified financial entity model and the authorisation of two tiers category 1 products and category 2 products—complex and run-of-the-mill if you like. I think it is a very good fit. Yes there may be further work to do. 
I shall talk a little about the types of institutional accreditation. There are those registered under this bill as category 1 products and category 2 products and authorised by the Securities Commission. That is nice and clean. There are bound to be some organisations that fall outside or very close to it but I am sure we will find them on the way through. Having category 2 will totally do away with all the fears of the various insurers agents and people who operate call centres for banks. Basically they are transacting run-of-the-mill business. I acknowledge the Minister in regard to where we have got to on that. On a cost and compliance issue it was a great leap forward because everyone had looked on it in horror. 
The question was put that the amendments set out on Supplementary Order Paper 253 in the name of the Hon Lianne Dalziel to Part 3 be agreed to. 
Amendments agreed to. 
Part 3 as amended agreed to. 
Part 4How financial advisers are regulated  
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to Part 4 of the Financial Advisers Bill which deals largely with how financial advisers are to be regulated. Essentially as the legislation is now to be enacted it will be under the guide of the Securities Commission which was established in Part 1 of the Securities Act. It was going to be product regulation based under the Securities Act and the Securities Markets Act on the one side and then as we have discussed in previous parts of the bill financial adviser regulation with supervision of both qualified financial entities as Mr Foss just spoke about and of the accredited financial advisers as Simon Power spoke about earlier. Clearly under the Securities Commission there will be enforcement of the statutory obligations of each of those organisations. 
But what is now being proposed in Part 4 is how we are going to regulate financial advisers through the establishment of a Commissioner for Financial Advisers. That is dealt with in subpart 1 of Part 4. The commissioner will be a member of the Securities Commission. If we look back to the legislation as originally proposed if I recall correctly we see that the idea was that we would set up a number of bodies under each industry organisation that would then be responsible for the accreditation of the financial advisers within their own industry. 
Hon Lianne Dalziel 
: They would apply to be— 
CHRIS TREMAIN 
: Yes that is correct. Then there would be a default provider if there was nowhere to go. It all got a bit complicated at the end of the day and everyone in the House agreed that going to one body with the default provider being the Securities Commission and therefore the Commissioner of Financial Advisers was by far the best alternative in terms of stopping duplication. Everyone knew where to go and we have come up with the best solution.  
Essentially the functions of the commissioner are dealt with in clause 77 and they are as follows: “(a) to appoint members of the code committee:”. As I understand it the code committee will be responsible for establishing the code writing it and updating it as time goes by. The other functions of the commissioner are “(b) to review the code and propose changes to the code as required: (c) to act as a chairperson of the disciplinary committee:”—because a disciplinary committee will be established under the commissioner for dealing with complaints and disciplinary actions—“(d) to oversee and expedite the work of the Commission in relation to financial advisers:”. Lastly it is the function of the commissioner to exercise and perform such other functions powers and duties as are required of the commissioner.  
Clause 82 deals with the content of the code that the commissioner will be required to put in place. What we have done in the legislation is outline some of the key criteria that must be part of the code. It must provide for minimum standards of professional conduct. As one would expect this includes things like the standard of competence that must be required from financial advisers or from qualifying financial entities the level of knowledge and skills that these individuals or qualifying organisations must have and the level of ethical behaviour and client care that one would expect from a quality financial adviser.  
The code must also provide for continuing professional training for authorised financial advisers which is something we have seen come across a number of professions whether for plumbers electricians or financial advisers. We have seen that ongoing requirement for continuing professional development and more recently we have seen this come into the Real Estate Agents Act where both licensees and real estate salespeople who remain independent contractors will be required to undertake ongoing continuing professional development. Lastly in terms of establishing the code under clause 82 subclause (3) states: “The code must specify different standards for different classes of authorised financial adviser.” That deals largely with the fact that there will be a two-tiered system where financial advisers will need to attain a higher level of qualification to advise on category 1 products versus category 2 products. I think that is good.  
Subpart 2 of Part 4 deals with complaints about financial advisers and how that will be dealt with. It is pretty straightforward. Any person now may complain to this one body and it will be far clearer than it was under the original legislation that was proposed. Thank you. 
The question was put that the amendments set out on Supplementary Order Paper 253 in the name of the Hon Lianne Dalziel to Part 4 be agreed to. 
Amendments agreed to. 
Part 4 as amended agreed to. 
Part 5General provisions  
SIMON POWER (National—Rangitikei) 
: 
 If I had not received such a pleading look from the Minister Lianne Dalziel not to stand I would have sat down. I just make the point that Part 5 relates to general provisions and appeal of decisions the right of appeal of the commission—interestingly on the issue of authorisation—and the potential decline of qualifying financial entity status. The District Court apparently will make those decisions. I suppose on an issue like that there does need to be a procedure for appeal and I guess on balance that the District Court is the appropriate place for that. 
The question was put that the amendments set out on Supplementary Order Paper 253 in the name of the Hon Lianne Dalziel to Part 5 be agreed to. 
Amendments agreed to. 
Part 5 as amended agreed to. 
Clauses 1 and 2  
SIMON POWER (National—Rangitikei) 
: 
 We come to the only two surviving original clauses of the Financial Advisers Bill which as we said earlier in the debate has been completely rewritten with 61 pages being deleted from the bill. 
Hon Lianne Dalziel 
: A hard-working committee. 
SIMON POWER 
: It is pretty hard-working all right! Sixty-one pages have been deleted but what stays? Since this bill was referred to the Finance and Expenditure Committee in February of this year or thereabouts what has remained from the years of work and reviews stakeholder meetings workshops and the like that occurred? What is left is the title—the Financial Advisers Act 2007—and the Government is to be commended for retaining that during this process.  
Secondly what has also remained during the last 8 or 9 months is the commencement date. That is clause 2(1) and it will come into force on a date to be appointed by the Governor-General by Order in Council. Secondly clause 2(2) states: “One or more Orders in Council may be made appointing different dates for the commencement of different provisions.” That is it. They are the only two clauses that survived the original bill. 
Hon Dr Michael Cullen 
: We listened! 
SIMON POWER 
: That is right—it is a listening Government. So we wiped out 69 pages of ineffective legislation and replaced it. But as we said earlier that was the right thing to do and we now have what we view to be a crucial first step in workable regulation around this industry. I think it is worth noting that the Minister has always been careful in her public statements and particularly in her press releases and speeches—which we have followed pretty carefully—to make the following two statements in either this form or in a form similar to it. The first statement is that she is not inclined she tells us to regulate for regulation’s sake which is something that we support. We believe that regulation in this case is necessary. Secondly the Minister has made the statement many times that we cannot legislate to prevent risk and that is also a position that the National Party endorses.  
I have to say that I think this is the only time in my short time here that I have seen legislation so thoroughly amended by the select committee process. It was not comprehensively amended of course because we still have clauses 1 and 2 but it was thoroughly amended during that process. That tells the Committee that the select committee process adds value to the final product and it also tells the Committee that where a Minister is prepared to allow the legislation to form up following further input and advice from officials other political parties and the select committee the Parliament can find itself with workable legislation. I will make some comments on the future of this legislation in the third reading debate but I will leave my comments on what are now really known as the enduring clauses of this legislation. 
CHRIS TREMAIN (National—Napier) 
: 
 I would like to speak to the enduring clauses of the Financial Advisers Bill and to beg to differ just slightly with my colleague Simon Power who claimed there are only two enduring clauses. When we look at the amended legislation in the mark-up version we see that in fact only one clause remains in the legislation. If we look at page 9 of the new bill we see that only the title has remained the same from day one. Clause 1 states: “This Act is the Financial Advisers Act 2007.” and everything apart from that clause has changed. The commencement clause has quite clearly been changed. In the first draft there was an original provision there but that has actually been changed. 
Sitting suspended from 1 p.m. to 2 p.m. 
Clause 1 agreed to. 
Clause 2 agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
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. 
SIMON POWER (National—Rangitikei) 
: 
 The Financial Advisers Bill has enjoyed support from the entire House from its first reading and through the select committee process in the Finance and Expenditure Committee its second reading and the Committee of the whole House and I suggest that that support will continue for its third reading. That tells us as a Parliament that the House regards this issue as being in many respects above the usual day-to-day political discourse that occurs on most of the legislation before it. Many many New Zealanders have lost money through finance company and mortgage trust collapses. Many billions of dollars have been lost because of those failures. It is critical to rebuild trust and confidence in our capital markets. The issue of the disclosure of fees and remuneration contained in this legislation is a key part of reforming the sector.  
I echo the Minister’s views when I say that many investors have received poor-quality financial advice. We in the National Party agree that there is a need to update the legislation that governs the activities of financial advisers and since the time when the Leader of the Opposition John Key wrote to the Prime Minister offering the assistance of the National Opposition with that process the issue largely became a depoliticised process. I was dispatched on behalf of the National Party to be briefed by the Minister’s advisers to discuss and negotiate with the Minister and to cajole her into accepting the differing views on the initial version of the bill. I will return to that matter shortly. 
One of the things that the Minister of Commerce and I and in fact that Labour and National agreed on very early was that it is impossible to eliminate risk from financial decision-making and indeed that it is impossible to legislate against such risk. So a balance had to be struck between minimising the risks for investors and minimising the costs of a new regulatory regime for investors. Of course legislation is not the only response to minimising the risks of financial investment. Improved financial education and literacy need to be part of improving New Zealand’s investment culture. Fundamentally the proposals in this legislation to require greater disclosure of financial advisers’ remuneration commissions royalties and other such payments greater disclosure of qualifications and conflicts of interest and a higher level of competency on the part of financial advisers are necessary. So too is the need to hold financial advisers accountable for the advice they give.  
This bill very appropriately in our view establishes the Securities Commission as the sole regulator of financial advisers and abandons the original co-regulatory model. It allows institutions to be accredited and responsible for their employees rather than in many instances requiring all individual employees to register. The two-tier regime which provides heavier obligations for more complex advice and lesser obligations for more simplistic products makes sense and is practical.  
On the issue of the financial adviser the definition of that term has been covered extensively during the Committee stage. There was no doubt that the attempt in the original bill to define advice given by referring to the occupation of the individual or the organisation giving that advice was based on a faulty premise not because that was not a good place to start the discussion about what a regime should look like but because it provided too many loopholes for people to avoid the regulatory framework. Indeed on the other hand it would have captured in our view—and in fairness to the Government in its view as well—a group of advisers who were never intended to be caught by a more complex regulatory regime rather than a more simplistic regime relating to more straightforward financial products.  
During the select committee hearings we saw the emergence of a model that virtually developed itself as submitters gave their views to the Finance and Expenditure Committee. It was actually quite a remarkable discussion with members of the committee putting alternative models to submitters as the submitters appeared and asking for their comment on the workability and practicability of those models. As those discussions went on it became clear that they were forming up in the minds of the committee and of the chair Charles Chauvel a useful model to explore beyond the model first offered at the bill’s introduction and first reading. To the credit of the officials who were advising the committee they swallowed hard and started effectively from scratch to draft the legislation that is now before the House in its third reading.  
During the second reading debate I said that parliamentary counsel made a remark in the drafting stages when I asked how much of the original bill would stay intact—my recollection was that the answer was three clauses. We later found out that it was two clauses and there was a suggestion during the Committee stage that it was only one clause. That meant there was a buy-in by the committee and by the Minister who corresponded with the committee on at least one occasion that I can recall offering to buy into that model and offering some suggestions about how it could work in a more practical way. I have to say the bulk of the work and if I can reuse the word I used in the Committee stage the elegance of the legislation that was put before us was largely a burden that had to be shouldered by the officials who advised the committee on that matter. They are to be commended for and congratulated on those efforts.  
I conclude by thanking the Minister of Commerce for making the officials available and for discussing this legislation in a positive and constructive way. I think in the end the House has delivered legislation that will begin this process in a comprehensive and thorough way.  
I will finish by saying one thing—and the Minister will be relieved to know that I am the only National Party member who is taking a call in the third reading—which is that this legislation in itself will not prevent people from losing money when they make investments. That is a very trite thing to say but it is an important statement to make because whatever happens after the election on 8 November and whoever occupies the Government benches will not change the situation that some people will lose money on various investment vehicles. All that the Government or for that matter Parliament can do is to provide a regulatory and legislative framework that is designed to put the best possible information before investors and to ensure that those people who are in the investment advisory business are competent and are required to disclose matters material to the investment decisions that are being made. The legislation cannot prevent loss and it cannot prevent risk but it does go some way towards requiring those who are giving financial advice to meet a far higher standard than that they have had to meet up until now. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First supports the Financial Advisers Bill as we do the suite of bills that surround it. We look forward to bringing to this House in the next Parliament other measures to help investors in this country. We need to encourage people to invest in our businesses and the sort of behaviour we have seen recently does exactly the opposite. Successive Governments have tried to steer people in this country away from property which New Zealanders have a preference for and one cannot do that if people see their money disappearing down the tubes. This bill goes some way towards making sure that the people who advise investors are at least registered which means they can have some faith in the advice that they get.  
I think it is great that the people who advise at the budgetary advice level like those from citizens advice bureaus have been left out of this bill thus ensuring that people who give advice to others like my friend Clayton Cosgrove are not caught up by this sort of thing. Where Mr John Key gets his advice from for his share trading we do not yet know—that has yet to be seen—but we suggest he would probably come into a category 1 or 2 situation whereby the level at which he operates is somewhat more sophisticated. We were pleased to see that those who advise people in good faith and without receiving any recompense need not feel that they could suffer a fine because of their good works. We think that is absolutely appropriate.  
As I said at the beginning and I will finish on this note New Zealanders need to have faith that the investments they make usually at the latter end of their working life do have some sort of surety around them and in particular that the people giving them advice are qualified to do so that they understand the situation people are in and that they give advice appropriate to people’s age their risk profile and those sorts of things. This bill goes some way towards ensuring that without taking away any of the entrepreneurial activity that we seek to encourage in this country.  
A party vote was called for on the question  
That the Financial Advisers Bill be now read a third time. 
Ayes 118 
New Zealand Labour 49; New Zealand National 47; New Zealand First 7; Green Party 6; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 2 
ACT New Zealand 2. 
Bill read a third time.