Alarm over adviser law change

Contrary to aspirations to be a financial services hub, proposed regulations may make New Zealand a "laughing stock" in international investment circles, experts say.

The Financial Advisers Act and amendments in Commerce Minister Simon Power's Financial Service Providers bill are designed to protect Kiwi investors from unscrupulous or incompetent investment advisers.

There is no argument against the need for more stringent controls over the financial advice industry, but experts are concerned oversights in the law will have major consequences, catching out numerous unsuspecting parties.

Yet to come into force, amendments in the bill do nothing to rule out a swath of potential pitfalls in the act, Minter Ellison Rudd Watts financial services partner, Lloyd Kavanagh, said.

The requirement to have all advisers registered and qualified would catch out some parties giving investment advice; for example, offshore advisers for fund managers and other sophisticated investors would have to sit exams in New Zealand.

Formerly a member of the Securities Commission, Mr Kavanagh said that would be seen as a waste of time by the international investment community, as New Zealand was a small market.

"Staff at a New York investment bank would have to become New Zealand-authorised financial advisers to advise a New Zealand superannuation fund on its United States equities or a New Zealand company on a US takeover bid. Their answer will be 'why would we?"'

Consequently New Zealand funds and companies would lose access to international expertise. Even the Government itself may be affected if its advisers were not qualified, Mr Kavanagh said.

Simmonds Stewart partner Andrew Simmonds said the law needed to be tailored to protect retail investors from direct selling of packaged investment products, but the status quo was counter-productive.

"If a New Zealand investor approaches an Australian adviser for advice, good on them. If an Australian firm is systematically selling products and service into New Zealand then regulate them, no problem.

"But the total lack of thought that has gone into these important distinctions will make us a laughing stock."

Mr Power said he wanted to ensure the law was "balanced and justified" but was confident the select committee process would fix any problems.

Mr Kavanagh said the select committee process relied on people making their case.

"People outside New Zealand won't know what is going on, and many New Zealand businesses who do not deal with the public still do not understand they will be covered."

Mr Simmonds said serious issues in the financial services industry could not be understated, but that the legislation needed to focus on the providers of financial products, with advisers a secondary concern. In its current form the law was going to smother the industry, he said.

"It's like dropping an anvil on a flea," Mr Simmonds said.

Another effect may see startup companies caught out, with a pitch to potential investors deemed investment advice.

Such companies would have to employ a registered adviser to make the pitch for them, or become registered themselves.

Auckland business incubator IceHouse's chief executive, Andy Hamilton, said the legislation was not clear yet, but it was unlikely the Government wanted to stifle entrepreneurs pitching for capital.

"If it was to happen then that would absolutely be a problem. But I don't think it is the Government's intention that when you have professional investors that we will be in this situation.

"I'm comfortable that it's going down the right track," Mr Hamilton said.

- © Fairfax NZ News