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Advisers to become personally liable for advice

Financial advisers will be unable to operate through limited liability companies under the new regulatory regime and will become personally liable for any financial advice they give.

Monday, August 3rd 2009, 6:59AM

Chapman Tripp partner Tim Williams said that the new requirement that only individuals can provide financial advice was not widely understood and may not have been thought through entirely.

He has suggested that officials reconsider the Act in this respect. The prohibition will also mean that broker tip-sheets will need to be attributed to individuals rather than coming from the broker firm.

Some of the other anomalies identified by Williams were:

  • The ban on listed companies giving market guidance. This is inconsistent with the requirement in the NZSX and NZDX Listing Rules that listed companies give guidance through NZX when required under NZX’s continuous disclosure rules.
  • The removal of the current general relief for issuers in favour of relief for offering documents and advertisements only.
  • The removal of the current relief for procedural advice on how to invest (rather than what to invest into) except in relation to KiwiSaver
  • The failure to provide relief for financial advisers, who are not journalists, writing in the media on specific products, as frequently occurs.

“When it becomes effective, the Financial Advisers Act will apply more broadly than the current disclosure laws. It will apply when advising on an increased range of products and even when giving advice to wholesale investors,” Williams said.

“The Act also will extend the current disclosure obligations to include requirements for authorisation and registration and will set up qualifications and conduct standards."

The Financial Service Providers (Registration and Dispute Resolution) Act will impose a requirement for financial advisers to have dispute resolution services available.

“While there will be opportunity to include exemptions in the regulations, which are currently being prepared, if the prohibition on providing financial advice through companies is to be removed, amendments to the Act will be required because it would be such a fundamental change,” he said.

Tags: Disclosure financial advisers regulation

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