KEY POINTS:
Financial advisers are going on the offensive, after accusations that they failed to prevent thousands of investors losing hundreds of millions of dollars in a string of finance company collapses.
The industry's largest professional body, the Institute of Financial Advisers, is calling on MPs to include real estate
agents, accountants and lawyers in new regulations intended to clean up the industry.
And it says it is unconcerned that the proposed law changes might require anyone who gives financial advice as part of their job - including bank staff and some retail workers - to prove their competency.
The Government has been trying to figure out how to protect investors since a Securities Commission review in 2004 highlighted serious concerns about the non-bank finance sector.
New disclosure laws which came into effect last week require all financial advisers to give potential clients a statement revealing details such as their qualifications, remuneration and potential conflicts of interest, before giving any advice. And more new laws are on their way, which will effectively allow the industry to regulate itself, under the oversight of the Securities Commission.
Commerce Minister Lianne Dalziel told Parliament last week the draft laws had been deliberately worded to apply to a wide range of people, including those giving advice on property and other investments. "But at the same time, we do not want to use a sledgehammer to crack a nut," she insisted. At present, the draft laws will apply to mortgage brokers, but will exclude accountants, lawyers, and real estate agents - all of whom are also about to face their own beefed-up regulations.
IFA chief executive David Hutton said this week the association believed anyone who provided any sort of financial advice should have to prove their competency and accountability.
"We need to cover everything. The ongoing problems over the likes of companies like Blue Chip show people are just as at risk in the property sector."
Mr Hutton said he supported attempts by chartered accountants to improve their own professionalism, but their own proposals for handling financial advice did not go far enough.
"It's good, sound stuff, but what it doesn't require is qualifications and registration with a professional body."
The Institute of Chartered Accountants has recently distributed a draft standard for accountants to follow when giving investment advice. Among other things, the institute appears to be backing a move to fees, rather than commissions, as the main form of remuneration in the industry. It has also proposed a ban on "soft benefits" from product providers, such as free or subsidised rent, office equipment, or travel.
The institute's director of government relations, David Pickens, is concerned the Government's proposals are out of proportion to the scale of the problem, and might not do much to clean up the industry. He is also concerned that compliance costs are likely to be passed on to consumers, which might deter some people from seeking advice in the first place.
"I read somewhere recently about some interesting research that was done on regulation in the electrical industry overseas. There has actually been an increase in problems, because rising costs have forced people to try and do it themselves."
The Financial Services Federation, which represents many non-bank finance companies, said it supported the new regime - which among other things would require financial advisers to join an approved professional body - but had "severe misgivings" about who it might cover.
Executive director Justin Kerr said the federation was concerned retail staff sorting out hire purchase contracts for things like washing machines and lounge suites might be included.
The Bankers Association says it is also concerned too many bank staff might get caught in the net.
Law Society president John Marshall QC said the reason lawyers had been excluded was that separate regulations applying to their own profession were also being improved and it would be too confusing for the public to have two different regimes.
Separate regulations have also been proposed for the real estate industry.
The IFA has already asked for fines for rogue real estate agents to be increased, to align with those faced by financial advisers. At present, the draft regulations for the real estate industry set maximum fines of $40,000 for an individual and $100,000 for a corporate entity. Under the current Securities Markets Act and the Financial Advisers Bill, the maximum penalties are $100,000 for an individual and $300,000 for a corporate.
The finance and expenditure select committee is due to report back to Parliament with its recommendations by June 20.
