Financial Advisers Bill

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 $10,000 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.

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.

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.

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.

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.

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.

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 $200,00, $300,000, or $400,000 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 Māhia 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 3 Authorised financial advisers and qualifying financial entities