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Claim lawyers, accountants getting unfair deal

Accountants and lawyers should no longer be allowed any exemptions to offer financial advice outside the control of the Financial Advisers Act, one industry commentator says.

Tuesday, March 10th 2015, 6:00AM 9 Comments

by Susan Edmunds

Adviser Murray Weatherston said he could not see why lawyers, accountants and journalists writing advice columns were given special exemptions that meant they did not have the same obligations as financial advisers.

“They are doing exactly the same as any AFA does without being subject to the same rules and scrutiny of the FMA. Because they are exempt the FMA has no ability to go into their practices to check what people are doing.”

The FAA allows lawyers and accountants to offer financial advice when they are doing it as part of the ordinary course of business of that kind.

Weatherston said that meant it could be part of the lawyer or accountant’s core business, as long as it was their ordinary course of business. “My view is that they should be brought right square into the ambit of the Act.”

He said it was unfair that an advice columnist could answer individual reader’s questions and give them advice for their specific circumstances without having to go through the rigorous compliance process an adviser would have to.

“I wish I could get away with being compliant if I only wrote three or four paragraphs for a relatively simple problem. Burt I’m not allowed to.”

Journalists should only be exempt when they were writing about the industry, not providing advice themselves, he said.

“I’d like to see this front and centre in a review of the FAA. Why do these groups have any exemption, other than the fact their industry body might be quite powerful?”

He said he had heard anecdotally of people who had clients referred to a lawyer or accountant who then advised against the adviser’s recommendations.

Weatherston said: “I would be surprised If lawyers and accountants aren’t dabbling in the arcane arts of financial advice.”

A Ministry of Business, Innovation and Employment spokeswoman said the issue could be addressed in the Financial Advisers Act review.

“The issues paper that we release in May will seek views on a number of aspects of the regulatory environment, including what is defined as advice and who is captured."

« FMA outlines supervision approachTell MBIE what you think of regulation »

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Comments from our readers

On 10 March 2015 at 9:09 am dcwhyte said:
Agree with Murray 100%! Can you imagine the outcry if an AFA provided legal or accountancy advice "in the ordinary course of their business"? Likewise with journalists. There is no substantial reason for the exemption in responding to specific enquiries by offering specific advice. Any publication worth its salt would consult with a suitably qualified professional adviser. These exemptions are nonsense. Let's hope MBIE is as good as its word and banishes these silly anomalies.
On 10 March 2015 at 9:31 am R1 said:
Where in an accountant's or lawyer's training are they given the knowledge and skills to provide credible, professional advice on best practice portfolio construction? For that matter, where are AFA's provided with this training? Surely that has to be a starting point for anyone being able to give advice that is in the best interests of the client.
On 10 March 2015 at 4:06 pm Pragmatic said:
As I've said repeatedly: all those who dispense financial advice (whether implied, in the normal course of business, or by any other means) should be treated equally.

The current regulations trivialise the advice offered around retirement savings by providing a second tier regulatory, whilst overlooking the actual advice dispense by other professions. Until there is a single classification, the consumer won’t stand a chance.
On 10 March 2015 at 5:27 pm Mike Naylor said:
My understanding of the exemption is that it only applies to advice offered as part of the usual business of being a lawyer or accountant. This usual business will not normally directly involve financial advice and certainly not portfolio decisions. Thus an accountant's 'core business' cannot be offering financial advice. They are not qualified to do this.

However a lawyer may offer trust advice while establishing a trust.

So the FMA (or code committee) needs to clarify exactly what the exception means and issue an advisory to lawyers and accountants. The review does need to clarify this.

Journalists are allowed to use specific cases to illustrate a generic point. However they do need to make it clear that this never constitutes individual advice. Answering specific queries could place them outside the exemption.
On 10 March 2015 at 9:43 pm dcwhyte said:
Mike - so we can better understand the need for exemption, can you please provide some specific examples of financial services "advice offered as part of the usual business of being a lawyer or accountant".

Also, as SSB contains significant legal content, it's safe to assume that an AFA can offer legal advice, as long as it's part of the usual business of being an Authorised Financial Adviser?
On 11 March 2015 at 7:53 am Katrina Hawker said:
Last year some long standing clients with a family trust found themselves on the receiving end of specific investment advice proffered by their professional co-trustee, a lawyer. It was poor advice that would have exposed the trustees to a great deal of specific risk.

It was an awkward situation but my clear duty to disagree and also make a complaint to the FMA. Their response was to refer to the exemption.

In this case, however, this lawyer had gone a step too far. The Law Society's guidance notes (and what used to be NZICA's notes also) contain case study examples that make it clear a trustee should assist their co-trustees to make a decision about an investment but, unless they are qualified to do so, must not give advice themselves.

I pointed this out to the FMA. Their response was to say, yes, that's right, we'll weigh up the risk of this sort of behaviour but, in this instance, the risk is low and no action will be taken.

The tip of a very large iceberg, I imagine.
On 11 March 2015 at 12:17 pm Mike Naylor said:
David - an accountant may be advising on the interface between a client's business income/risk and the domestic income/risk, and advise the client that they need to have more liquid financial assets. That is advice which is clearly 'part of the business' of an accountant. They will have been taught it during their accounting training and it will be covered by the rules of professional accounting body.
The idea behind the exemption was to stop accountants being regulated by two different processes. It is harder to find examples of lawyers offering financial advice as a 'part of their business' outside trusts.
During the regulation discussions the accountant and lawyer professional bodies argued strongly that they should be exempt completely, so it was a win that the parliamentary committee and the code committee refused this. As we all know, prior to the FAA many accountants and lawyers offered advice on investments etc, often to the cost of their clients. Most have either stopped this practice or registered one staff member as AFA. If the FA industry knows of some who are still offering advice then they need to be dobbed in. The accountants and lawyers I talk to seem to know their limitations.
Katrina, I am intrigued by the FMA's initial response to your complaint, as the FMA are clearly wrong. I will raise this issue with their staff.
Maybe David Ireland needs to be asked to give the code committee's official response to this?
David - an AFA can give advice on general principles of law. An insurance example would be "the law states that you need to disclose whatever a prudent underwriter expects you to disclose". The issue of course is - where is the dividing line between legal advice as part of being an AFA and legal advice as part of being a lawyer.
On 11 March 2015 at 5:21 pm dcwhyte said:
Thanks for that Mike.

I suspect that the issue really arises when Accountants are advising on products defined as Category 1 or Category 2.

The example you cite would not be within the scope of either Category, and the overlap between the Accountant and the AFA/RFA seems pretty tenuous.

Similarly, relating a statement that is printed on a life insurance application form hardly amounts to 'advice'.

I think Murray's point is still valid, and that the Authorities allowed any exemption was erroneous and far from a 'win'.

Add the nonsense of the QFE structure, and you have a veritable dog's dinner crying out for rationalisation and simplification for the benefit of the confused consumer.
On 13 March 2015 at 7:48 pm Winka said:
Murray, you are logically correct in your statements. When I began in the financial advisory profession back in the mid 1980's virtually everyone agreed that the time had arrived where the public needed to accept (and demand) that all professionals should stick to their particular niche. eg: Lawyers cannot have time in their daily work loves to attend to updates in the often numerous daily tax changes, and vice versa, accountants cannot have enough time on their day to keep up to speed with equivalent law changes.

To add another professional, the GP, who may feel ' obliged' in the course of their daily business to 'attend to some form of financial advice'..... it becomes quite absurd.

I could recognise way back in the mid 1980's that it was likely that the process of educating the investing public that a new 'specialist' professional was needed in their lives, and this new kid on the block was going to replace their traditional investment advisers/planners, such as their lawyer, accountant, insurance agent, father, fishing club or golf club mate and others. I used to clarify that one of the hardest things for a human to accept was ' change.'

Unless ( as someone once stated)the historical and seemingly almost arrogant attitude of bodies such as the legal profession is quelled and put into its proper place, I would suggest that the problem is not going to disappear quickly, if at all. The whole world has become 'specialised' and gone are the days when the builder did everything, from the plans to the foundations to the walls to the painting to the roof to the sakes, get the drift?

Lawyers are still pretending to be able to slot in Trusts yet there are Trust 'specialists' who can do a far more effective job!

Lastly, 'attempts' at regulating the financial profession is another hot topic I have offered my qualified views on.

Prior to that GFC that is drifting into history, there was regulation in place that somewhat lulled investors into thinking their investments were 'safer' if transacted via a prospectus? If the central word of 'trust' is then considered....why is it that no Trustees of any of those prospectii were ever taken to court instead of the directosr?

Michael Donovan (a Money Managers original director, sold and retired June 2001).

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