Column: Regulations to clean up advice industry

On July 1, New Zealand joins the rest of the developed world in having regulations governing who can give financial advice.
Since deregulation in the mid-1980s, New Zealand has followed a policy of light regulation.
During the past four years, we've seen the meltdown of many finance companies and the subsequent loss of billions of dollars of investors' funds. For most, there is little or no chance of recovering their losses from these investments. While some investors did seek advice before investing, results were sometimes less than satisfactory.
While the Institute of Financial Advisers has been the industry body for setting standards and supervising most professional advisers for 20 years, membership is voluntary and anybody could call themselves a financial adviser without being a member or having any qualifications.
The Financial Advisers Act is designed to give greater investor confidence, but it creates a lot of new rules, regulation and jargon that investors need to understand.
How qualified do advisers have to be under the Financial Advisers Act?
An Authorised Financial Adviser (AFA) must meet minimum competency requirements and adhere to a code of professional conduct set out by the Code Committee. The code sets minimum standards of competence, knowledge and skill, ethical behaviour and client care. It also includes minimum requirements for continuing education and training.
In future, people who provide financial advice on investment-focused products, an investment planning service or a discretionary investment management service will need to be AFAs, requiring registration and authorisation. Others, offering more limited services, will just need to be registered - Registered Financial Advisers (RFAs)
If investors want comprehensive financial and investment advice, they will need to choose an AFA. There will be substantial fines and suspension for advisers giving advice outside their areas of experience or qualifications. Advisers must give full disclosure of any fees and possible costs before giving any advice, and the advice and recommendations need to be in writing.
What you can complain about?
You can complain to the Securities Commission if people or companies breach the Financial Advisers Act after December 1, 2010.
How will the act and dealing with an AFA benefit you as an investor?
Regulation will be good for consumers, but the number of people giving financial advice is likely to drop initially. When Australia introduced adviser regulations, almost 40 per cent of people giving financial advice left the business.
Quality firms are positive regulations will help clean up the industry and provide a more credible platform for providing professional financial and investment advice.
- Allan Williams is an adviser with Spicers Portfolio Management