Last attempt to change exemptions

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Financial adviser groups have made one last attempt to get the rules tightened for accountants and lawyers who offer advice.

Tuesday, April 18th 2017, 6:00AM 1 Comment

by Susan Edmunds

Both professions can provide financial advice outside the scope of the rules that bind financial advisers, when it is incidental to another part of their business that is not a financial service.

It has been argued throughout the review of the Financial Advisers Act that such exemptions are unfair.

But the Ministry of Business, Innovation and Employment indicated it was not something it had an appetite to change because there was little evidence that it put consumers at risk.

Now, at the last stage of feedback on the new regime, advice groups have made their point again.

The Institute of Financial Advisers and Share both raised the issue in their submissions on the exposure draft of the Financial Services Legislation Amendment Bill.

The IFA said it was disappointed that accountants, lawyers and real estate agents would be able to continue to "dodge" the requirements of financial advice.

"This has been a contentious issue with our members for some time," it said.

"We recognise that it is not feasible or likely that these businesses can be made to comply with all of the rules of the regime but feel that the exclusions from the definition of financial advice need to be additionally strengthened by 'clear and effective processes and controls' in relation to this 'incidental' part of their business."

It said advisers were able to provide accounting advice in areas in which they were competent. "The reverse situation should exist for accountants and lawyers, as professionals they should not be able to conduct business or give financial advice without completing the same competency requirement of a financial adviser."

Advice group Share agreed it was problematic. "If a car dealer's principal activity is selling cars, then the provision of insurance may be seen as incidental. But surely those consumers deserve the protection of the law around provision of financial advice. Similarly a real estate agent who offers lending advice or an accountant who offers KiwiSaver advice."

The IFA said it also had concerns about the provision of execution-only services, which are not bound by code of conduct requirements.

"There is as much potential of consumer harm in an execution-only transaction from not knowing the risks of proceeding or not proceeding, if an FA, FAR, FAP or excluded business or individual is not bound by the code in the case of a transaction then there is opportunity for loopholes and abuse of the Act.

"All of consumers' advisers should have an ethical obligation and should be competent to understand the limitations or risk a consumer faces for taking a course of action the consumer has chosen. We cannot think of another Act that allows individual to step out of their legal liability without ensuring the consumer is making an informed decision."

READ MORE: Advisers can work with many entities: MBIE

Tags: Financial Markets Conduct Act

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