Labour: Support for regulation change
Labour is likely to support the bill that will repeal the Financial Advisers Act, at least through first reading, if its fate ends up in the party's hands.
Wednesday, March 15th 2017, 6:00AM 
5 Comments
by Susan Edmunds
Labour’s spokesman for Consumer Affairs, Michael Wood, said there was little chance that the Financial Services Legislation Amendment Bill would make it through Parliament before the election.
The bill replaces the Financial Advisers Act with new financial advice provisions within the Financial Markets Conduct Act.
It aims to simplify the regulation governing the sector but concerns have been raised about the designations it introduces, and its conflict of interest provisions.
But if National does not win the election, the fate of the bill may rest in Labour’s hands.
Spokesman for regulatory reform David Parker said the Financial Advisers Act in its current form had been a “cock-up” from Simon Power.
“Regulation of financial advice went right over the top.”
He pointed to the sale of state-owned power companies as an example of where it had gone wrong.
“So many broking houses were conflicted because they had a role as sub-brokers, there was nowhere someone in the street could go to get information.”
Parker said he suspected Labour would support the bill, at least until its first reading.
He was supportive of the idea of reducing unhelpful regulation on financial advice.
Meanwhile, adviser Murray Weatherston has submitted on the bill’s client-first provision.
He said the clause in the bill put into statutory form Cabinet’s decision to extend the client-first duty to all advisers and enshrine it in legislation.
The bill says advisers have a duty to put a client’s interests first.
If they know, or ought reasonably to know, there there is a conflict between the interests of the person to whom advice is being given, and their own interests, or the interests of any other person, “[the adviser] must give priority to [the client’s] interests, including by taking all reasonable steps to ensure that the [adviser’s] own interests or the interests of any other person do not materially influence the advice.”
“I applaud the fact that the duty is expressed so clearly. No-one should have difficulty in understanding the duty as expressed that way. The law is crystal clear,” Weatherston said in his submission.
“I submit that it is critically important that the statute defines what the duty means. It should not be stated as a bald principle and be left to be decided what it actually means elsewhere.
“I am not aware where the ‘client-first duty’ applies in any other statutory setting. I have not been able to discover any case law that has considered what a client-first duty means in practice. The meaning of the duty in the Code of Professional Conduct for Authorised Financial Advisers has never been tested in the Financial Advisers Disputes Committee.”
He said the idea that there should not be a conflict with “any” other person was too broad.
It was also not clear what “doing anything in relation to the giving of advice” would mean.
“I would be very concerned if the adviser in providing some service or services to a client was obliged to determine in all cases whether or not the services they were providing, whether regulated advice or not, were the appropriate services to be providing.
"That logic could be extended to a situation where an adviser declined to provide any advice – could she be second-guessed in hindsight that she should have provided advice? That would be akin to compelling an adviser to provide regulated advice. That does not seem to be right."
David Ireland, chair of the code committee, said he too would submit against the clause.
“Irrespective of your views on whether the standard should be client first or best interests of the client or some alternative formulation of that sort of concept, code standard one [placing clients' interests first] has been fundamentally altered and its application narrowed by the way it has been reflected in the draft legislation.”
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Comments from our readers
Therefore to require individuals who work for vertically integrated organisations to put their clients’ interest first is asking the impossible. To say it is so when it is demonstrably not makes the regulations look duplicitous and the regulators complicit in the scam.
Leaving duty to be prescribed by anointed bureaucrats - guidance notes; regulations, or: Committee would damage confidence.
At core, the 'Client first' duty highlights the fissure between Financial Product Representatives promoting their mixed wares, and real Advice.
Change may be worthy. The current Minister seems to have been poorly served by her minions in this confusing & confused draft.
The unintended consequences that MBIE are seeking guidance and input on are evident across the ditch with ASIC now mounting a campaign against the activities of the bank's wealth management units.
As you've pointed out in the past, disclosure doesn't do it. Consumers in Australia claim that they were confused, misled, or didn't fully understand the implications of bank employees recommending the bank's own products. The VIOs claim to have followed approved disclosure procedures.
Who will the courts favour? Take a guess!
MBIE following this same path is simply setting a time-bomb for the industry.
In fact, MBIE with the replacement of AFA/RFA with FA/FAR is not only maintaining the confusion for the consumer, they're making the situation worse.
A train-wreck in the making.
Yes a train wreck in the making. Sooner or later there is going to be a class action for bad behaviour. Look forward to being an expert witness for the prosecution and wouldn’t it be funny if the MBIE, the FMA and the Code Committee were all named as co-defendants.
That would obviously take a change of government but change is in the air at the moment around the world and I’m sure Winston/the Greens will take a dim view of the current regulatory environment once the nuances thereof are explained to them. That’s on my agenda.
I think submitting to the MBIE and lobbying the current government is a complete waste of time as, as you pointed out their minds are made up for them by government just as they always have been. Must be very frustrating for some people to have to talk rubbish consistently when they secretly believe otherwise.
Regards
Brent
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It is now obvious the Code Committee will be opposed to the clause.
But I did not submit against the clause - I submitted strongly for the clause but asked for a couple of tweaks.
My communication skills must be slipping.
Anyone who might be interested to see my full submission only has to ask.