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Lawyers argue exemptions should stay

Lawyers say there is no evidence that the Financial Advisers Act exemption that allows them to offer financial advice in the normal course of their business is having any detrimental effect on consumers.

Wednesday, February 24th 2016, 6:00AM 12 Comments

by Susan Edmunds

Lawyers and accountants can provide financial advice outside the scope of the FAA when it is an incidental part of another business that is not a financial service.

Concerns were raised about the fairness of the exemptions in submissions to the FAA review issues paper.

The Institute of Financial Advisers (IFA) said it could see no reason why an accountant or lawyer who went beyond “discuss and consider” situations and made specific recommendations about an investment portfolio or insurances should not be subject to AFAs' requirements.

But MBIE said in its options paper that it was not something that it was proposing to change because there was a lack of evidence of any consumer harm or consumers being at risk.

Rebecca Sellers, convener of the Law Society’s commercial and business law committee said lawyers were fully regulated under their own occupational legislation, which required them to provide an independent service, not act if there was a conflict of interest and must meet competency and qualification standards.

“For these reasons the Law Society supports the proposal to retain the existing exemptions from the Financial Advisers Act regime.  The Law Society’s view is formed on the basis that the it has no evidence that the exemptions are having a detrimental impact on consumers’ financial outcomes, or on the professionalism or consumer confidence in the financial advice industry.  Any person with evidence to the contrary should submit on the options paper and provide their evidence to MBIE,” she said.

One adviser who did not want to be named said she had concerns that some lawyers did not fully understand investment management, even around issues such as PIE tax rates.

“What’s normal course of business,” she said. “Are solicitors and accountants going outside the parameters? They are not always well educated on how modern investors make money.  There are times when that exemption causes concern.”

SiFA has asked its members for examples of situations where the exemption has been a problem.'

Submissions on the options paper close on January 29.

A spokeswoman for MBIE did not say whether engagement over the exemptions had changed its view.

“The consultation on the options paper closes on Friday, after which officials will review and analyse all the feedback and submissions. The individual submissions will go online in due course.”

Tags: Financial Advisers Act MoBIE

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Comments from our readers

On 24 February 2016 at 7:07 am Pragmatic said:
I couldn't disagree more! Lawyers & accountants who provide incidental investment advice are more dangerous to consumers than semi-qualified advisors. The time has come for consumers to only deal with qualified dispensers of financial advice. Crickey - you wouldn't go to your pysiotherapist for dental advice....
On 24 February 2016 at 9:28 am Tash said:
Medical practitioners are regulated by the medical council (or whatever) so shouldn't they also be exempt?
On 24 February 2016 at 11:58 am Steven Popodopolus said:
There is no doubt then that real estate agents should be providing incidental investment and insurance advice
On 24 February 2016 at 12:46 pm w k said:
ummmm ...... what about financial advisers giving some legal & tax advice which can be incidental to investment advice. eg. ownership, investment company structure, tax implication, how profits should be distributed, etc? just a thought.
On 24 February 2016 at 1:54 pm Dirty Harry said:
I was talking to my builder the other day. Turns out builders are fully regulated under their own occupational legislation, which requires them to provide an independent service, meet competency and qualification standards, meet ongoing training and competecny requirements and pay an annual fee.

He would appreciate me pointing out that there is also no evidence that builders giving financial advice would have a detrimental impact on consumers’ financial outcomes, or on the professionalism or consumer confidence in the financial advice industry. On this basis my builder would also like to be exempted from the FAA and give financial advice in the normal course of his business.
On 24 February 2016 at 3:24 pm Brent Sheather said:
One thing I seem to remember from my first year law course was a famous quote by some law-lord who said words to the effect that it was more important that the law be consistent than it be correct. It seems like many of our laws as regards the provision of investment advice are neither consistent nor correct. Many lawyers who give investment advice are compromised because they have side businesses running cash management. Some in one major city even own shares in a major finance company. Rebecca Sellers says lawyers are required to provide an independent service and not act if there was a conflict of interest. I want some of her drugs.
On 25 February 2016 at 9:55 am Charity said:
Rather than MBIE stating that they wouldn't change the exemption because there was a lack of evidence of consumer harm or consumers being at risk, the question should be why is the exemption needed in the first place. If a lawyer or an accountant is telling a client how to invest their money, that is not an incidental part of their advice. If the lawyer or accountant is telling the client that they might want to consider investing in shares or fixed interest as part of diversification then that is not financial advice. Neither lawyers nor accountants aren't in a position to follow markets on a daily basis to give financial advice and their training does not come close to giving them the qualifications to provide investment advice. MBIE's statement that there is no evidence of consumer harm or risk is incredibly stupid and naïve. There can be problems ruminating for years without it coming to light. Think of the David Ross debacle. And if they want to give an exemption for lawyers and accountants to give financial advice then financial advisers need to be given an exemption to give legal advice and accounting advice. See how that sits with the Law Society and the New Zealand Institute of Chartered Accountants!
On 25 February 2016 at 12:14 pm gavin austin adviser business compliance said:
Well said Charity. What short memories these MBIE people must have after all there was significant evidence that a substantial amount of business that flowed David Ross’s way was from Lawyers and Accountants – do we need any more evidence of public harm. Any Lawyer or Accountant who refers business to any AFA and does not do any due diligence on who they are referring their clients to does potentially do a lot of harm if haven’t checked out who they are referring to. To throw their hands in the air and say “I didn’t know” is just not good enough. The first question they should ask any adviser they are contemplating referring to is: “Who do you use for your external independent compliance oversight” at least that way they have some idea if the adviser is taking their legal responsibilities seriously.
On 25 February 2016 at 12:22 pm dcwhyte said:
The strength of the various responses should suggest that this exemption is a non-starter - for all the very good reasons stated.

Previously, the first reason offered referred to the claim that lawyers are already adequately regulated. They may be - but not in the areas of investment or risk insurance advice. Nothing in their training provides for the remotest competency in asset allocation, portfolio management, or personal risk analysis and planning. Nothing in their professional supervisory body suggests competence in overseeing members practices in the investment and risk space.

The second reason proffered relates to the lack of evidence of harm visited upon consumers. Every schoolboy knows you cannot 'prove' a negative and, from a prudent regulator's perspective, the lack of evidence does not prove the lack of existence, only that no such wrong-doing has been discovered.

Such an exemption could likewise be claimed by other advisers - as Murray Weatherston so politely and succinctly inquired of the FAA Review session in respect of mortgage and F&G brokers - what problems are the regulations trying to fix?

Even accepting the need for regulation - as most of us do, I suspect - providing an exemption to one segment of the market merely serves to dilute the impact and confuse the consumer.

In any event, there are plenty examples of CAs who have recognised the need to be competent in the investment and risk space and meet the standards of the specialist knowledge required by obtaining AFA status.

There is no reason Why lawyers should be given special treatment.

No exemptions, no exceptions!
On 26 February 2016 at 6:53 am MPT Heretic said:
If MBIE or the Law Society want evidence of consumer harm I would suggest the easiest way would be to audit the sources of revenue for a cross section of lawyers & accts pre 2008. Given the proliferation of marketing material in their reception areas I am picking more than a few earned $ from clients directed into failed finance companies and property syndicates
On 26 February 2016 at 9:40 am R1 said:
I suggest we also look at the professional backgrounds of the MBIE people and their political masters. More and more laws, regulations and stupid ones at that only benefitting those earning a living from policing or litigating them. Conflicts of interest are an insidious cancer on our society and economy; not just in NZ.
On 26 February 2016 at 11:09 am w k said:
@R1: you hit the nails (not just one nail) in the head.

i read an article from a learned judge some years back, he said something to this effect - contracts can be written in plain language, as long as they are unambiguous & have proper witnesses, it will be upheld in the court of law. there you go guys, save some money.

talking about unambiguous, seems that a lot of laws are ambiguous - always wondered why?

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