Financial Advisors Act

August 26th, 2009 at 2:00 pm by David Farrar

Stephen Franks blogs on the and the Financial Advisors Act:

Last evening Doug Bailey and Dr Andrew Butler of Russell McVeagh presented to the National Party’s Blue-Libs a plea for the party to  upgrade what Andrew called “the Bill of Not Quite Rights” (the NZ Bill of Rights Act 1990). Among other recomendations Andrew urged strengthening the duty on the Attorney General to report on whether Bills before Parliament are inconsistent with NZBORA and a “forced response” from the government when there is an inconsistency,  requiring the government to say if and what it will do about  it.

Not a bad idea.

Among the Bills that desperately needed an adverse NZBORA opinion was what is now the Financial Advisers Act 2008. …

When it comes into force there will be a $100,000 fine for:

a) broker who explains on the radio or television why a company is doing well or badly and should be sold;

b) Brian Gaynor for any acid comments to discourage bad investment, or praise for strong companies, unless he can show that despite the common description of him as a funds manager he is actually entitled to an exception for journalists;

c) a broker who acts on phoned instructions from clients he’s known for decades, instead of insisting they give him orders in writing.

There’ll be a $5000 fine for:

a) b) a financially savvy blogger who earns money from ads on his blog, if he says something like, “steer clear of Bridgcorp/Blue Chip - Petriecivic/Bryers will lose your money”;

Sounds like a case of good intentions gone awry.

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9 Responses to “Financial Advisors Act”

  1. Jack5 (4,745 comments) says:

    Too late for the scores of thousands of mainly older New Zealanders misled by these cowboys.

    Good on National. It’s move on trustees will tighten up on finance companies, too:

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10593345

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  2. F E Smith (3,302 comments) says:

    Quite honestly, the NZBORA is a complete waste of time. The Government ignores it whenever it wants to and the Courts spend many hours finding ways to justify breaches of it by enforcement officers and government departments of all types.

    Baigent’s case was the high water mark and nothing of note has happened since then that gives our rights any sort of priority.

    The Government should either give it some teeth or get rid of it.

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  3. ernesto (257 comments) says:

    FES: “Baigent’s case was the high water mark and nothing of note has happened since then that gives our rights any sort of priority.”

    Ain’t that the truth. To any idiot that thought it a progressive step, Baigent’s Case now seems like a complete judicial anomaly that the Courts try their hardest to overlook.

    Perhaps a swing back towards Baigent will happen in a generation or two when our upper Courts begin to reflect the cosmopolitan society in which most of us live.

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  4. Falafulu Fisi (2,176 comments) says:

    The Financial Advisors Act is stupid. Why regulate the free-market ? It is buyer beware? If investors are too stupid to do some digging themselves into the info they see on TV or get from other forms of media (print, internet, radio), then that’s their faults and don’t blame financial advisors/commentators.

    Here is the most stupid of all the ones being highlighted above:

    c) a broker who acts on phoned instructions from clients he’s known for decades, instead of insisting they give him orders in writing.

    WHY? The reason, is because the world of financial market trading is moving fast into automation where human-brokers would be a thing of the past, therefore, investors would soon be able to do their own trading without a human broker. The explanation for this is because of the acceleration of electronification of market trading. This was highlighted in an IBM report from 2007, which is freely downloable (see link) . So, why make the job of a broker harder now, with this law, given that investors would soon abandon using them?

    The trader is dead, long live the trader! A financial markets renaissance

    The government should butt out from trying to over-regulate the market, afterall there won’t be any legislation that is going to stop stupid people making bad investment decisions and that’s an undeniable fact.

    I am not trying to defend financial advisors here, since I agree with Gareth Morgan that most of them are illiterate but it is disgusting to see a government trying to legislate in order to protect stupidity.

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  5. peterwn (3,189 comments) says:

    BORA did help the guy who strummed a guitar singing anti-police protest songs outside a police officer’s bedroom window.

    Bora has had far more influence on Government than Sir Doug Graham envisaged (he called it ‘bumper sticker’ legislation). At the time of enactment there was not that much appertite for a constitutionally binding Bill of rights especially as there was disagreement over what should be in it (eg should the Treaty of Waitangi be included as an appendix, should it cover health, education, welfare and employment ‘rights’ ie should lazy bums get a free ride on the backs of the long suffering taxpayer?).

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  6. Kimble (4,392 comments) says:

    tsk, I wish free-market proponents would stop misrepresenting what the free market is. It is not a market absent any central controls or enforced standards. It is not pure anarchy, and not all regulation is over-regulation.

    Buyer beware is always good advice for buyers, but it can’t form the basis of a well functioning market. It is TRUST that makes markets work. Without trust people wont trade. The government is there to set standards and smack offenders so that TRUST can be the default position in place of suspicion when people trade.

    The “free market” as you envision it does not offer ex ante protection. You may think that if a service provider constantly rips off their clients that the free market would lead people to stop using them. But only if the previous rip-offs are recognised by prospective clients. How can that information be transmitted without a defined set of standards? Do you expect word of mouth to do the job?

    And what about all the people who get ripped off along the way? Is there no reason to protect them? Whats the point having an ambulance at the bottom of the cliff when a guardrail and signage at the top of the cliff leaves everyone better off?

    There is no regulation that is going to stop people investing in things that turn bad, but that isnt what this legislation is trying to achieve.

    If the legislation is flawed then say that. For example, if the legislation doesnt accommodate the broker in c) above recording the phone conversation as proof of authorisation then it is flawed. But dont think that all legislation involving the market is automatically bad for the fact.

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  7. Kimble (4,392 comments) says:

    I am, of course, an advocate of proper free-markets.

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  8. ernesto (257 comments) says:

    peterwn: “BORA did help the guy who strummed a guitar singing anti-police protest songs outside a police officer’s bedroom window.”

    Yes, its been great for the serenading protestor… and the bleary eyed drink drivers.

    I fear this issue is all a little to niche for there to be any real outcry.

    First they came for the financial advisors…

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  9. deanknight (263 comments) says:

    Perhaps, rather than vesting the vetting job in a single people, we can also consider setting up a special select committee which reviews all Bills for Bill of Rights Act consistency (like they do in the UK)? I’m all for politicians taking responsibility for rights and rights reasoning…

    d

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