Do not over-regulate advisers: Power

Laws to regulate financial advisers cannot protect investors against all forms of loss, Simon Power, National Party spokesman for commerce has warned.

Thursday, July 31st 2008, 6:50AM

by Maria Scott

Speaking to the Institute of Financial Advisers conference in Christchurch last week, Power said that legislators should take care not to over-regulate following the financial sector collapses of the last few months.

Legislators needed to be careful that their response to failure in the market did not lead them to try to prevent all failures in the future.

Risk was a crucial factor in financial decision-making; "Parliament cannot legislate for risk."

But Power said that there needed to be a "massive increase" in transparency on fees and performance in the financial services industry. Investors and regulators needed to be provided with better information.

"As legislators we can't legislate for risk but can't allow a repeat of what we've seen in recent years."

Power said he had concerns about aspects of the proposals in the Financial Advisers Bill, including the definition of "financial adviser".

The proposed definition has been changed since the first draft of the bill was published. Originally the Government proposed what it has described as an "all encompassing" definition of financial adviser but earlier this year Commerce Minister Lianne Dalziel proposed a redefinition so that a financial adviser would be someone whose main business was providing financial advice.

Power said that the definition of financial advice was a "major hurdle" in the Bill.

He liked the idea of a definition that included the giving of a recommendation or opinion although it should leave out those who were not giving advice as "reasonably understood".

"Any definition should be comprehensive but simple and certain."

Commenting on the Government's plan for financial advisers to be regulated directly by the Securities Commission rather than "as originally proposed" a series of approved industry organisations Power said that there would still be a consultative role for the industry.

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