Creating two tiers of financial advisers based on what products they give advice on may be the best way to regulate the industry, according to the Government's finance select committee.
The committee has reported back on submissions held during July for the Financial Advisers Bill and has taken
yet another direction on the legislation.
In the initial stages of the bill it was proposed there should be a model of co-regulation, with the Securities Commission and an approved professional body working together. Now the committee is suggesting further amendments to establish two levels of financial advisory services as well as creating a commissioner of financial advisers.
It wants one tier to be created for advisers who recommend complex products including advice on securities or investment broking and savings or investment planning and for those advisers to be directly authorised by the commission.
A second tier would not require advisers to be authorised directly by the commission but they would have to comply with basic disclosure rules and conduct.
That tier would include advice on credit, general insurance or simple securities such as bank deposits or call accounts and it is likely most of those giving advice would be tied up with a larger organisation such as a bank which would then have to be authorised by the commission.
But the latest changes have not found favour with the industry.
Tony Vidler, spokesman for the Financial Advisers Associations, said having two tiers defined by products created the potential for loopholes allowing complex products to be dressed up as simple products.
It was also difficult to define which products should fit into each category.
For example, Vidler said KiwiSaver was being treated as a complex product while lending and credit was being labelled as a simple product.
"But far more damage can be done to someone who gets the wrong advice for credit or lending."
Submitters have until August 22 to respond to the latest recommendations with the final select committee report due in Parliament in early September.
