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Wow. A minister with passion!

Wednesday, August 20th 2008, 6:09PM 9 Comments

by Philip Macalister

Wow, it’s not often you hear a minister give a passionate speech at a conference, let alone a financial planning conference. But that’s exactly what Commerce Minister Lianne Dalziel did at the PIS Conference this week. While she shared the platform on adviser regulation with the bosses of the IFA and PAA, Dalziel spent a good chunk of her opening getting stuck into EUFA. This was fascinating. While EUFA is a good initiative and can potentially help investors, there has been a view building for some time that its MO is way off track. I know this from talking to other journalists and also being a recipient of its regular email press releases. The organisation is one of the most prolific emitter of press releases I know of at the moment and much of what it sends out is highly, emotionally-charged allegations. Very few of these releases ever make it into print, which says something. What is more important is that EUFA has clearly pissed off the minister big time, when really it should be bending over backwards to build relationships with her and other officials. Dalziel, as I say, was extremely passionate in her criticism. Her main beef being that EUFA claims she has called people who have been caught up in the finance company and Blue Chip mess “greedy, stupid and naïve.” Dalziel absolutely riles against this allegation. She says she has never used the first two terms, but has called some of these investors naive. There she is right. She also makes a few other sound points. The government can’t take risk out of the market. Without risk there is no return. Do we really want to have nothing but government bonds to invest in? She also says EUFA could actually be helping its members, rather than carrying on like it is. She says there are things EUFA can do to help people such as using the Securities Commission and the ombudsmen schemes, but, she says, it’s not doing that. I hope EUFA take this as a major wake-up call and changes its tactics. Clearly they aren’t working.
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Comments from our readers

On 21 August 2008 at 9:23 am Dr Dave McMillan (CEO PAA) said:
While it was great to see that the Minister was full of passion at the PIS Conference yesterday it was equally disturbing that she expressed complete surprise at the concerns that both David Hutton and I raised in our presentations on the proposed Bill.
For the record:
1. I have met personally with the Minister (in her office) to discuss our concerns. I have also met with Peter Dunne, Bill English, and Rodney Hide.
2. The PAA (along with other professional associations) have completed numerous submissions on the varous iterations of the Bill (three submissions with another one due tomorrow!) All of these submissions have been made available to our members.
3. We appeared before the Select Committee last month to voice our concerns in person.

It is my belief we have provided feedback through ALL of the correct channels in the consultation process. We are committed to ensuring an even playing field for all advisers. If that means being "ticked off" by the Minister then so be it.

We are more than happy to meet again personally with the Minister to share our concerns in an effort to make the Bill equitable for advisers.
On 21 August 2008 at 11:20 am Barry Milner said:
If Dr. McMillan is suggesting the minister is being economical with the truth he should say so, loud and clear. The issues before this minister are far too important to our profession for us to allow any misrepresentation of the views that have been put forward to her and her officials by our representatives.
The proposed legislation should be delayed until after the election when it can be discussed in a measured way with a minister who has a mandate to manage the portfolio for the next three years, it should not be rushed through by a minister with only two or three months of her mandate remaining.
On 22 August 2008 at 3:15 pm Giles Thorman said:
I have felt reasonably relaxed about the impending changes to our Industry, that is until I read remarks attributed to the Minister of Commerce at the PIS conference in Rotorua....

"Dalziel took a different view,arguing that the bill needed to be passed before the election, otherwise there would be insufficient time to get it in place by the end of next year."

Why the legislation needs to be in place by a specific time she does not comment upon. The Minister does go on to say that the details can worked out once the Bill was in place!!!! This to me looks and sounds like a real disaster in the making, we could spend the next couple of years chopping and changing what we do and how we do it in order to fit to legislation that is being added to as we go along.
Can the IFA, PAA and the Media get a clear statement from the National Party to exactly what their "Absolute Commitment" alluded to by the Minister, actually means? Does it mean they have rubber stamped whatever this Government cooks up? A knee jerk reaction to try and show the electorate that Labour can be tough against the Finance Company melt down does nothing for anyone in the long run. The call should be, do it once, do it right.

Giles Thorman
On 22 August 2008 at 5:34 pm Lianne Dalziel said:
I apologise if I gave the impression that I had not spoken to the representatives of the various professional bodies that represent different groups of financial advisers. Of course I have.
What surprised me at the conference was the insistence that we hold over passing the legislative framework (i.e. the Bill) until as late as March next year.
I said to both of the other speakers on the panel afterwards that I hadn't seen them since they had adopted that view, so that was news to me.
Both of them expressed views about certain aspects of the reform that I hadn't heard before. Immediately afterwards I asked David Hutton (on behalf of the over-arching group) to arrange two meetings with my office; one as soon as possible and the second after the Bill has been redrafted and reported back.
Please don't buy into conspiracy theories - I have had an open door policy from start to finish.
It appears that my officials have felt more constrained than I had realised while the Bill was before the Select Committee.
I apologise for this because it was not my understanding of the approach, nor was/is it in the interests of getting this right.
As I said at the conference, I wish I had worked out that the co-regulatory model couldn't be sustained sooner than I did.
Most of the complaints about the model were around the number of APBs and if there was only going to be one, which one it should be.
In retrospect it probably would have made things easier if the overarching group of professional bodies had been formed when the government announced the decision on the co-regulatory model in Feb 06. But as I also said it is only with hindsight that we can guarantee 20/20 vision.
I read from some of the comments that some advisers think I am keen to get the Act through now, so I can be seen to be 'doing' something. It isn't.
It is so that the Securities Commission can start doing its work, because it currently has no mandate to do anything in this area.
I am confident that with a lot of goodwill we can get the Bill in good shape and the detailed regulations can then be developed between the Securities Commission and the professional bodies. Thank you again for the opportunity to participate in your conference.

Lianne Dalziel
Minister of Commerce
On 23 August 2008 at 1:24 pm Mike Cole said:
Firstly it immensely encouraging that the Minister has opted to post a comment within this forum but I am somewhat concerned that she opted to make public comments which she now feels a need to justify as they would appear to have been mis-interpreted which in itself a shame.
Like Giles I see no reason to rush this legislative process - like most things in life taking a little extra time to do it once and get it right will always pay longer term dividends. So the Securities Commission cannot take a regulatory role yet but that should not stop it having some input into the form and structure - surely as a profession we would welcome such input as they have been on the block so to say for a while!

Looking to put a supposed structure in place and then refine the detail simply means, in my experience, that the Regulatory body stops listening and starts telling which too often they do not have the ability to do on a professional basis - it always turns out in these cases that the tail starts wagging the dog - let us not end up with that scenario!

The devil is always in the details so why not take the time to get it as right as possible now - we as a profession are ready, able and willing to have a degree of regulation in place but I believe we all want it to be good for the public, good for the profession and good for us as advisers individually!

One other aspect I suggest the Minister look at and that is education of the public - let us not have a public who perceive that as our profession is regulated they can throw caution to the wind. The word naivety has been used and I suggest with good cause but it is incumbent on the profession and the government to make sure the public understand what their responsibilities are - for a start perhaps the government could be looking to educate the public on just what rating companies rating actually mean - i.e. that B- is not that clever at all and that if the banks are offering an 8% return and a Finance Company 14% perhaps there is a good deal of risk involved!

Regulating our profession and educating the public in the light of recent events should go hand in hand!

Late move forward positively and get this done once and get it right first time and that means lets not have a time line!
On 29 August 2008 at 2:20 pm Russell Garland said:
From what I have read, it seems to me that the Commerce Minister, Lianne Dalziel is pushing the Regulation of Financial Advisers Bill because of the collapse of various Finance Companies, especially when she states "for every call for restraint from the sector, there are dozens of investor voices clamouring for changes to be made and the sooner the better". I have read a report about a certain Finance Coy that released audited accounts 9/07 & in that same month a new prospectus stated: 1. Maximum loan to value ratio 67.7%. 2. No loan over $10m. 3. All 1st Mortgages. 4. All have mortgage insurance 5. Securitisation program was explained. In 10/07 the Coy announced that all loans were 100% insured and one month later 11/07 they appointed a receiver. By 5/08 reeivers report was: 1. Average loan to value ratio >90%. 2. Two loans over $40m. 3. There was only one 1st mortgage. 4. Insurance invalidated. By June 2008 advice was that the return may be only 10 cents since reduce to 8 cents. As an adviser, how can I be at fault if I had recommended this Company based, on the prospectus. What about the Auditors? Are they responsible? What about the Trustees of the Finance Company? Are they accountable? Is the rushing through of the regulation of Financial Advisers Bill going to stop dishonest Finance Companies? Some of them may end up doing Jail time, but will come out to their Millions in their spouse's name. What are the Lawmakers doing about this if they are concerned about the "dozens of investor voices clamouring for changes?". I assume that even the Auditors are making a fair whack from the ordinary investor. In my opinion, Lianne Dalziel needs to tighten up the laws so that the Bridgecorps and others cannot get away with their dishonesty.
On 30 August 2008 at 8:28 am Suzanne Edmonds said:
Not surprising that the Minister would seize the opportunity to use the forum [circumstances] that she did to deliver her message against EUFA; a place where she could not allow EUFA a response, but hey, she just confirmed everyone's thinking.

Anyone who reads this blog is welcome to spend a day in our offices and see the suffering that the industry has dealt to New Zealand's real KiwiSavers. It's a shame the Government fails to implement the current laws that have been broken.

Take heart. EUFA will be still around after the election.
On 30 August 2008 at 4:27 pm Gray Eatwell said:
It is extremely unfortunate that the Minister has developed the view she has.

Our mission is simple, that being to Expose Unacceptable Financial Activities to which the event described by Russell Garland August 29th is the tip of a very large iceberg.

While I make no apology for the emotion emulating from EUFA, the Minister and professionals involved in the Governance of the Finance Industry would do well to take stock of some truths.

Other than hold many public meetings, EUFA has held meetings with senior compliance officers of the Reserve Bank (particularly discussing section 36 of the Reserve Bank Act and historical financial statements), the Commerce Commission, Retirement Commissioner, Select Committee, Liquidators, Receivers, several law firms and many other individuals and bodies.

We have also corresponded and spoken to the Securities Commission on many occasions, however I take exception to the statement that EUFA has not tried to work with the Banking Ombudsman as I have had a well-documented working relationship with the Banking Ombudsman for over a decade.

Accordingly I have considerable knowledge of the jurisdictional boundaries of that Office.

Maybe someone would do well to ask Mrs. Brown.

Unfortunately many of these important events and the detail involved have slipped under the Ministry and the media’s Radar.

Although I am somewhat frustrated by public comments made about our efforts, I struggle to reconcile the motives of paid Governors and professionals who have made such efforts to oppose a voluntary group pleading for accountability on behalf of its members.

As stated by Russell Garland the Finance Industry and those with the statutory obligation to police it have got a lot to answer for.
On 1 September 2008 at 10:53 am Tony Vidler said:
without wishing to rehash many of the arguments outlined thus far (many of which I agree with), I think that it is critically important for the interested parties to the Financial Advisers Bill to understand professional financial advisers position on this business. That is:
1. Career-orientated, consumer-focussed, professional financial advisers support regulatory reform. We want good law and a level playing field to minimise the possibility of a repeat of the last few years that has been allowed through the lack of industry governance to date, or requirement for minimum standards.
2. We are not afraid of good regulation, or swift implementation of it. Bring it on now - if it is right.
3. Advisers are very afraid of seeing aspects of the Australian experience repeated here - that is poorly designed law, brought in swfitly, with the promise that the detais could worked out and added in later. Good intentions and a desire for swift action to rectify rampant consumer complaints led to onerous and prescriptive legislation implemented swiftly. The idea was "it doesn't matter if the rules aren't quite right, we'll fix it up as we go - but it is important to get something done now". Sound familiar? Then over the next few years some 600 rule amendments, clarifications, interpretations and so on were released by te regulators. it was literally running at a change a week for a couple of years. Result? Massive confusion amongst the public and the advisers themselves, compliance costs went throught the roof (passed on to consumers of course) with the rise in governance, advisers withdrew fom the sector completely (over half left the industry n 2 years), and less consumers received advice of any sort - good, bad or indifferent. Result? The next 10 years saw just as much money lost in bad investments and inapporpriate product selection. That is what happens when bad law is drafted and implemented swiftly - nothing practical is achieved, but consumers costs increase, their access to good advice is reduced and he fundamental problems remain unchecked.

From my dealings with the Minister and MED officials to date, and my knowledge of the Securities Commission actions in the last few years, I have absolutley no doubt whatsoever of the good intent and desire to protect NZ consumers & promote confidence in the financial services sector - we are all on the same page there. I am strongly concerned that the desire to be seen to be doing something swiftly will actually achieve quite the opposite.

In the aftermath of the First World War - at that time the greatest traumatic experience the world had experienced - The Treaty of Versailles became the "good law" that would prevent a repeat of such trauma ever again. Instead, poorly drafted, unable to be implemented adequately, flawed from inception and rushed into place to make the world feel good, it became the very thing that led directly to the Scond World War only 20 years later.

The perfect example of another disaster arising from the seeds of a poor solution to the first disaster.

Professional financial advisers WANT good rules and good regulation. Without it the professionals will struggle to be distinguished by consumers from the fly-by-nighters. It is because we care about the industry and the way our world will work and look for the next 20 years that we want this done right, rather than just done quickly.

This industry and the NZ public deserve good long term solutions to ensure the best possible outcome, not political band-aid solutions that simply create the illusion of a solution.

The reality we all have right now is that after 4 years or so of drafting, consulting, arguing, explaining and so on, we have a piece of legislation that is a step or two away from becoming law, and the regulators to be still cannot settle on the core aspect of the law:

Who should be covered by it, and what shuld they be covered for?

Yet the public is being told that it is important to get this law in place to protect them - swiftly. I cannot see how a piece of law that fails to definitively express who is covered by it, or what events are covered by it, can provide any protection or certainty of any consequence to anybody involved in the industry - consumers, advisers, regulatrs, suppliers or anyone else.

To use the Ministers words to me a little while ago "I just don't buy it"

Tony Vidler
FAANZ
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