Ministry of Economic Development Home| Contact MED|

Online Services Companies Office Crown Minerals Electrical Workers Insolvency Intellectual Property Gas & Electrical Safety Insurance & Superannuation Motor Vehicle Traders Personal Property Plants Variety Rights Radio Spectrum Tourism Research

 
 
 

• Home
• Regulation
• Financial Sector Policy
• Financial Advisers
• Discussion Document
• 7. Application of the ...

• Financial Sector Policy

• Financial Advisers

• FSP/FAA fees discussion document
• Submissions
• Implementation
• Update FAB
• Cabinet Decisions Financial Advisers
• Review of Intermediaries
• Task Force
• Media Statements
• Select Committee Process
• Supplementary Order Papers Report
• Cabinet Documents
• RIS/BCCS
• Summary of Submissions
• Discussion Document

•  

31. The first matters to consider under the application of the legislation are the descriptions of "financial intermediary", "financial advice" and "financial product" and the classification of the types of "financial intermediary".

Descriptions

32. The Taskforce referred to a "financial intermediary" as an individual or business who markets financial products¹³ or provides financial advice¹⁴ to members of the public.¹⁵

33. Ministry officials have used this description as a starting point. It is important to note that the description of "financial intermediary" will depend on the description of "financial advice" (see paragraph 49) which itself depends on and requires a description of "financial product" (see paragraph 34) as set out in the flow chart:

"Financial Product"

34. The Taskforce described a "financial product" as "any product having an investment, debt, risk or credit component."

35. This description could include the following products:

• Credit products (including hire purchase contracts, credit cards, mortgages, reverse equity mortgages)
• Debt/equities and any other securities
• Foreign exchange contracts
• Managed investment products
• Superannuation products
• Investment life insurance products
• Life insurance products
• General insurance products
• Futures and derivatives.

36. While the Ministry supports a broad description of "financial product" to allow future development of financial products, and to encourage greater certainty, Ministry officials recognise that there are reduced levels of risk for consumers for advice on some products.

37. For example, the Taskforce suggested that advice on some risk products, such as car insurance, travel insurance, home and contents insurance does not have sufficient implication for New Zealand consumers in light of the objectives of the review of intermediaries.¹⁶ This was on the basis that consumers were generally aware about their options, and were familiar with the product.

38. Another example of an exempted financial product is a "call deposit" which is excluded from the definition of "security" in the Securities Legislation Bill.¹⁷ As "investment advice" (in the Bill) is restricted to recommendations about acquiring or disposing of securities, the effect of the exclusion is that a person providing advice on a "call deposit" is not providing investment advice and is not subject to the investment adviser disclosure requirements under the Securities Legislation Bill.

39. The Ministry's discussion document on the Securities Legislation Bill Regulations sought submissions on exemptions to "investment advice". Ministry officials are reviewing responses to this discussion document in relation to investment adviser disclosure, and will incorporate submissions into the policy development work for financial intermediaries.

40. Ministry officials are still considering whether public familiarity with a product is sufficient to reduce obligations on intermediaries. General public familiarity with a product may not be sufficient to meet the objectives of the Government's work on financial intermediaries, which are to ensure:

• that intermediaries are efficient in addressing information asymmetries in the market, and also
• that the regime addresses the information asymmetries about the intermediaries themselves by providing the investor with confidence in the competency and integrity of their intermediary.
• To meet these objectives, familiarity with a product would have to mean that members of the public know enough about that product to make informed decisions.

41. If public familiarity with a product is enough to reduce intermediary obligations, then Ministry officials consider that the public appears to be generally familiar with the short term general insurance products such as:

• vehicle insurance
• house and contents insurance
• travel insurance (there is some dispute as to whether or not this is short-term)
• personal / domestic property insurance products.

42. The Ministry is however concerned that even if these products are generally understood, this does not mean that a member of the public will know how much insurance they should or shouldn't have, or who offers the best products for their particular circumstances.

43. Ministry officials are keen to hear your views on these exceptions and whether there are certain products about which members of the public can be assumed to have sufficient knowledge so that intermediaries who advise on those products are exempt from some or all requirements of the legislation.

Investment Property

44. The Taskforce suggested that advice about tangible property should not be included in the proposed legislation, on the basis that collecting rare books, stamps wine etc is usually a hobby and is subject to the Consumer Guarantees Act. However, the Taskforce did suggest that advice about investment property should be included as New Zealanders view real estate as a retirement savings vehicle and because such property is marketed as an investment opportunity for members of the public.¹⁸ This would also impact on whether or not real estate agents fell under the definition of "financial intermediary" (see paragraph 67).

45. "Investment property" can include commercial premises such as business premises, car-parks, garages. It may be difficult in practice to determine when a financial intermediary is offering advice on property to a member of the public as an investment opportunity, especially as this will depend largely on the intention of the member of the public on how they use that property. There are some existing definitions of "investment property", for example, "investment property" is defined as under the New Zealand International Accounting Standards as:

property (land or a building -or part of a building - both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both rather than for:

• use in the production or supply of goods or services or for administrative purposes; or
• sale in the ordinary course of business."¹⁹

46. It is arguable that, given the levels of capital appreciation in residential housing in New Zealand, some residential home owners own their own property for capital appreciation reasons.

47. Ministry officials have also received comments that investment advice on some other forms of tangible property which are not collected as hobbies, for example, gold bullion, should also be included in regulation.

48. Ministry officials seek your views on whether "investment property" should be included as a `financial product" and whether or not there should be other tangible property included in the definition of "financial product".

"Financial Advice"

49. The proposed description of "financial intermediary" requires a description of "financial advice" to provide certainty to consumers and industry.

50. As a starting point, the Taskforce referred to "financial advice" as "advice about financial products or investment or savings decisions and choices."²⁰

51. In relation to advice on financial products, by comparison, "investment advice" under the Investment Advisers (Disclosure) Act is currently defined as:

(a) A recommendation, opinion, or guidance given to a member of the public in relation to buying or selling (or not buying or selling) securities; and

(b) Without limiting paragraph (a) … includes any such recommendation, opinion, or guidance, that is communicated by letter, newspaper, periodical, broadcasting, sound recording, television, cinematographic film, video, or any form of electronic or other means of communication.

but does not include

(c) Any such recommendation, opinion, or guidance given by a person whose principal occupation is that of a journalist and that is given in that person's capacity as a journalist; or

(d) Any such guidance about the procedure for buying or selling securities.

52. In this section, Ministry officials seek submissions on what should be considered financial advice, and also any required exceptions.

Proposed Description

53. Ministry officials propose to describe "financial advice" by reference to financial products, so that financial advice is a recommendation, opinion, or guidance given to a member of the public in relation to buying or selling financial products.

54. Ministry officials seek your views on whether or not this description should extend further, to include financial advice which is not related to financial products. This information was defined by the Taskforce as advice that relates to "investment or savings decisions and choices". This could include advice relating to financial structuring involving (e.g.) trust arrangements which may include, but not be restricted to, the financial products used by a particular client.

55. Your views are invited on whether advice that relates to investment or savings decisions and choices should be included as "financial advice", and if so, the form of any words that easily and practically describe this type of advice, and the type of exemptions (if any) that may be required to ensure that there are no unnecessary costs.

Exceptions

56. There are exceptions to the definition of "investment advice" in the Investment Advisers (Disclosure) Act, so that recommendations, options and guidance from journalists are not treated as "investment advice".

57. Ministry officials are aware that, in addition to journalists, members of other professions may be "financial intermediaries" because they provide financial advice.

58. Comments are invited on whether or not there should be any express exception for any group which provides "financial advice" to members of the public. (This paper discusses journalists, accountants, lawyers, budget advisers and real estate agents).

Journalists

59. Advice provided by journalists is expressly exempted from the definition of "investment advice" in the Investment Advisers (Disclosure) Act. The Task Force noted this point, and also referred to the contribution that journalists provide to overall consumer financial literacy and also "press freedom" concerns. However, because of this contribution, there is greater risk that members of the public will rely on journalists' advice when making financial decisions, without being advised of any potential conflicts of interest that may exist or journalists making sure they have taken reasonable steps to ensure the accuracy of the information.

60. Ministry officials are keen to hear your views on whether advice provided by journalists, when acting as journalists, should be excluded from the definition of "financial advice" or whether some requirements should be placed on them and what these should be.

Lawyers and Accountants

61. Ministry officials are aware that a broad description of "financial advice" which includes financial advice which is not related to financial products (see paragraph 54) carries the risk that it will include advice provided by lawyers and accountants even though they are acting as lawyers or accountants in providing that advice, and not as financial advisers.

62. Lawyers and accountants giving professional advice on legal and accounting matters are already covered by separate existing regulations,²¹ and Ministry officials are not convinced about the benefit of extending the definition of "financial advice" to include these professionals.

Budget Advisory Services

63. Ministry officials have received comments that the proposed description of "financial advice" would include those people who currently provide budget advisory services as a community service to those members of the public who are in financial difficulties and require budgeting and debt restructuring information and advice.

64. It is possible that some of these intermediaries are not acting in the ordinary course of business or employment, by providing pro bono advice, and so would fall outside the description of "financial intermediary" (refer to paragraph 77).

65. For the avoidance of doubt however, we are considering exempting this class of intermediaries, i.e., those intermediaries that provide services on a not for profit basis or not in the course of business), on the basis that:

• such intermediaries do not act for reward or commission, and so there is a reduced risk of conflicts of interest between the intermediary and any product provider; and
• unless exempted, such intermediaries would be subject to the highest level of regulation as they take into account the personal circumstances of a member of the public, and the cost of compliance with the highest level of obligation may discourage intermediaries from providing these services to community or charity groups.

66. This is not to say that the Ministry expects lower standards from those advising such groups (one good reason for intermediaries to be subject to the conduct and competency standards) but invites submissions on this point.

Real Estate Agents

67. Ministry officials have received a number of comments on whether or not real estate agents would or should be covered by this regulation. As noted at paragraph 57, the definition of financial intermediary is not restricted by professions, instead, the definition includes those individuals or businesses within any profession that provide financial advice.

68. Real estate agents may provide financial advice if investment property is a financial product, as real estate agents provide recommendations, opinions or guidance on investment property.²²

69. The Taskforce also noted that concerns had been raised about disclosure and selling practices in the investment property arena (for example, "hard selling" practices, excessive statements about returns with inadequate basis for the claims, and lack of disclosure of relevant factors that would enable a consumer to assess the risk and returns in relation to property investments).²³

70. Real estate agents could fall under a range of financial intermediary roles:

• Execution only intermediaries - if they carry out the client's (i.e. the vendor's) instructions to sell an investment property
• Product marketers - if a property developer markets investments for non-owner-occupiers in a new apartment development
• High level intermediaries - if they consider the circumstances of a member of the public, and advise accordingly against a range of investment opportunities.

71. Ministry officials have invited comment on whether or not "financial product" should include investment property. Here, comments are invited on whether or not real estate agents should be exempted.

"Financial Intermediary"

72. The Taskforce referred to a "financial intermediary" as an individual or business who markets financial products²⁴ or provides financial advice²⁵ to members of the public.²⁶

73. There are a number of changes which Ministry officials propose:

• Removing the reference to "marketing products"
• Restricting the application to those people who provide financial advice in the course of their business or employment.

74. The Ministry is also considering adding express reference to describe those intermediaries who receive money/property from members of the public to buy and/or sell financial products.

75. We seek your views on these suggestions (each discussed below) as well as any other amendments.

Intermediaries Who "Market Products"

76. The Ministry proposes removing the reference by the Task Force to those intermediaries who "market" products on the basis that advice given in relation to marketing or selling a financial product will be included in the definition of "giving financial advice".

"In the Course of Business or Employment"

77. Ministry officials consider that the role of a "financial intermediary" should, like the role of an "investment adviser" and "investment broker" in the Investment Advisers (Disclosure) Act, be restricted to those persons who provide financial advice or receive money or property in the course of their business or employment. This is on the basis that not all opinions on financial matters are required to be regulated - only those opinions of people who provide financial advice as part of their job, as these opinions are more likely to be relied upon, than opinions of people who do not provide financial advice as part of their employment or business.

Carrying Out Transactions

78. Ministry officials are aware that some intermediaries may carry out transactions in addition to providing advice. It is important that these intermediaries are included in the definition of "financial intermediary" as these intermediaries will have set responsibilities in relation to money handling.²⁷ The Ministry is considering including an express reference to those intermediaries who receive money and/or property from members of the public to buy and/or sell financial products under instruction. These intermediaries may give financial advice to members of the public, in a broad sense, in terms of how an investment is going, but their main focus is to act on the instructions of clients.

79. The Investment Advisers (Disclosure) Act currently refers separately to investment brokers and investment advisers.

80. To expressly include these intermediaries, Ministry officials are considering including those intermediaries who carry out transactions by receiving money and property, in relation to the buying and selling of financial products.

Proposed Description

81. The proposed description of a financial intermediary would refer to a person²⁸ who, in the course of the person's business or employment gives financial advice to [or provides transaction services for] members of the public.

Classifications of Intermediary

82. Intermediaries offer various levels of service. The Taskforce concluded that intermediaries could be divided into three groups, according to the level and type of service they provide:

• Information only/Execution only²⁹ - an individual or business who provides only factual information about a product
• Product marketer - an individual or business who markets financial products
• High level intermediary - an individual or a business who advises a member of the public on the suitability or appropriateness of financial advice or financial product.

83. Cabinet recommended that obligations on financial intermediaries would be dependent upon the class of financial intermediary. This is on the basis that the cost of requiring an intermediary who offers a basic service to have as many obligations and the same level of skill and expertise as an intermediary who offers a more detailed service, would outweigh the benefit of increased regulation.

84. Ministry officials are also considering whether or not there should be a further category to include those intermediaries who receive money or property from members of the public for the purpose of buying or selling financial products, without providing advice.

85. This section seeks your views on the suggested classifications particularly:

• whether these classes represent a realistic division in the types of New Zealand intermediaries; and
• how these divisions may be interpreted by intermediaries and members of the public, and how this matters.

Financial Intermediaries Who Give Financial Advice: Information Only

86. Ministry officials propose that the first category of financial intermediary who gives financial advice is the "information only" intermediary.

87. The "information only" intermediary is a financial intermediary who provides or passes on factual information about a financial product to a member of the public.

88. For example:

• a share broker who provides information on the current buy and sell price for a listed company share;
• the employee who provides a consumer with a factual description of the various products that business has on offer;
• a call centre employee answering mortgage rate queries; or
• a bank teller giving information on rates.

89. Currently the Investment Advisers (Disclosure) Act exempts information only intermediaries from disclosure obligations. These intermediaries are defined as those who "only transmit investment advice relating to particular securities given by those issuing securities."³⁰ To date there has not seemed to be any problems with this definition.

90. Depending on the final definition of this group, it is assumed that there will be a low need to regulate this class of intermediaries on the basis that:

• Providing factual information does not require intermediaries to have high levels of competency, just to be able to transmit information accurately.
• Members of the public will be less likely to rely on or treat information received from information only intermediaries as detailed specialised advice as they are just passing on factual information.
• If they are passing on information given by the provider of the product than there should be some protections around the accuracy of this information under obligations placed on the provider itself.³¹
• Such intermediaries are generally employed by large organisations, and the employer will generally take responsibility for employee actions under the employer/employee relationship. There is a risk that an employee may do an act for which an employer may not be liable, but in that situation, there is always the indirect protection which "brand" or reputation can provide to require or motivate an employer to remedy a situation caused by an employee.

91. Hence, these intermediaries we do not believe should be required to be registered as financial intermediaries, or to be members of an approved professional body.

92. It is possible that information only intermediaries will need to seek and record some information from a member of the public. For example, if a member of the public telephones an insurance company call centre to find out a certain term or condition of their insurance policy, it is reasonable to expect the call centre employee to take generic information from the consumer, i.e. age, date of birth, policy number, for the purpose of identifying that consumer. The mere act of asking for such information is not sufficient to elevate a call centre employee into the role of a product marketer (who actively promotes a product, rather than simply providing information) or a high level intermediary (who advises on the suitability of product) as the call centre employee may require such information prior to passing on the requested information on the product.

93. Information only intermediaries may be subject to legislative standards including conduct and disclosure standards as well as discipline and dispute resolution and any other matters which submitters raise. These obligations are discussed at paragraph 126 and beyond.

94. Ministry officials are interested in your views on this identified class of intermediary.

Financial Intermediaries Who Give Financial Advice: Product Marketer

95. The next Taskforce classification of a financial intermediary who provides advice, is an individual or business who "markets" financial products.

96. The Taskforce suggested that a product marketer could include:

• a property developer marketing investment for non-owner-occupiers in a new apartment development; or
• a superannuation provider promoting the benefits of a work-place superannuation scheme to employees at a work site, but who stop short of advising on the suitability or appropriateness of the product for the consumer.³²

97. The Ministry suggests that this class of intermediaries would more usually include:

• a call centre employee selling insurance products for one product provider
• a bank customer service officer actively selling a bank or bank related product (such as insurance) to a bank customer
• on the basis that a "product marketer" intermediary is a financial intermediary who:
• only advises on and sells a particular financial product or a particular financial product provider's products
• has expertise relating to a particular financial product or a particular financial product provider's products rather than a wide range of financial products and services (as opposed to high level intermediaries); and
• in most cases, is likely to be an employee.

Assumptions about Product Marketers

98. Depending on the final definition of this group, it is assumed that there will be more need to regulate this class of intermediaries, than "information only" intermediaries, on the basis that:

• Providing information on a product for the main purpose of selling that product, as opposed to simply providing information about a product, increases the reliance that a consumer will put on the intermediary selling the right product, and, because of that reliance, increases the risk that a consumer may suffer loss.
• This risk however can be managed - product marketers may be required to issue a disclaimer noting that they only sell for a particular financial product or a particular financial product provider's products (see paragraph 182).
• Like information only intermediaries, product marketers are generally employed by large organisations, and the employer will have responsibilities for employee actions. It has been suggested that some product marketers may be employed by financial providers as contractors, which may reduce any potential liability for the financial provider.

99. The Taskforce suggested that product marketers would not have to be registered as financial intermediaries, belong to approved professional body or adhere to approved professional body rules. Consumers are expected to decide whether or not a recommended product is appropriate for them themselves.

100. It is probable that these intermediaries will seek and record some information from a member of the public. For example, if a member of the public asks a bank customer service officer for information about mortgage rates applicable to that person, it is reasonable to expect the officer to review the existing accounts of the customer, or to seek personal information from the consumer, i.e. age, date of birth, sex, income etc.

101. The mere act of asking for such information is not sufficient to elevate an officer into the role of a high level intermediary (who advises of suitability of product) as the officer may require that information to consider whether or not that product can be offered to that customer, or to advise the customer of the terms and conditions applicable to the purchase of that financial product. This is different from advising on whether the product is appropriate for that customer, as there is still the assumption that the client will decide the suitability of the product themselves.

Possible Way to Distinguish Product Marketers

102. Ministry officials appreciate that it may be difficult to work out when an intermediary is marketing or promoting a product, and when an intermediary is recommending a product based on the customer's personal circumstances (see paragraph 108 for information on "high level intermediaries").

103. One possible way to clearly distinguish between product marketers and high level intermediaries could be on the basis of range of products sold.

104. For example:

• a product marketer could be defined as an intermediary who provides advice on a particular financial product or a particular financial product provider's products. An additional protection may be that they are required to be an employee of the provider;
• alternately, a product marketer could be defined as an intermediary who provides advice on certain products, for example, short tail insurance. It is possible that advice on some insurance products may be exempted from their regulation. Another way to keep regulation at the appropriate cost level may be to place lower obligations on intermediaries who advise on such products, by referring to them all as "product marketers."

105. It has been suggested to Ministry officials that employees in call centres in New Zealand currently sell products like general insurance (i.e. car, home etc) based on a "needs assessment". Under this example, a product marketer could take personal information from a consumer by way of a needs analysis to sell a product, and then pass the consumer through to a high level financial intermediary for queries on more complex products.

106. Ministry officials do not intend that call centre employees who are actively promoting a product should fall under the highest level of regulation simply because they take personal information from a member of the public by carrying out a simple "needs" assessment. To avoid this, it could be that financial intermediaries who give financial advice about a certain product such as general insurance expressly fall under the definition of "product marketer" while intermediaries who give advice about more complex products are automatically high level intermediaries.

Obligations on Product Marketers

107. Product marketer intermediaries may be subject to legislative standards including conduct and disclosure standards as well as discipline and dispute resolution and any other matters which submitters raise. These obligations are discussed at paragraph 126 and beyond.

Financial Intermediaries Who Give Financial Advice: High Level

108. The Taskforce referred to the highest level of intermediary as a "personal financial adviser". Ministry officials consider that a range of intermediaries will fall under this category, including some intermediaries who do not classify themselves as "advisers". To avoid this, this discussion document will refer to a "high level intermediary" where the Taskforce referred to a "personal financial adviser".

109. A high level intermediary is an individual or a business who advises a member of the public on the suitability or appropriateness of financial advice or financial product to the individual circumstances of that member of the public. This is more than simply discussing a range of products which may all be fit for purpose; rather, this intermediary provides professional financial advice to consumers.

110. High level intermediaries take into account the needs of the client before providing advice. There are two aspects to this role:

• Quality - that a member of the public can rely on an intermediary having sufficient skill and experience to provide the advice or service; and
• Independence - that a member of the public can rely on an intermediary considering a range of options before making a recommendation - not just endorsing one particular financial product or a particular financial product provider's products.

Obligations on High Level Intermediaries

111. High level intermediaries are expected to provide the highest level of service, with the most reliance being placed on them by members of the public.

112. Depending on the final definition of this group, it is assumed that there will be the most need to regulate this class of intermediaries on the basis that:

• Members of the public are likely to treat and rely on recommendations received from high level intermediaries as detailed specialised advice as the advice is expected to apply to their personal circumstances, and hence, consumers will be at a increased risk of suffering loss if the advice is misleading, or not of good quality;
• Such intermediaries are less likely than information only or product marketer intermediaries to be employed by large organisations, which means that:
  • there is lower standardisation across employers; and
  • there is also less protection offered by employers being liable for actions of an employee, or by employers keen to protect their brand.

113. The Taskforce suggested that high level intermediaries would have to be registered on a public register as financial intermediaries, belong to approved professional body and adhere to approved professional body rules. These obligations would be set down in statute.

114. Other obligations which could be set down in statute include obligations relating to

• conduct including:
  1. belonging to an approved professional body
  2. meeting the initial entry level competency and conduct standards set by the approved professional body
  3. maintaining these competency and conduct standards
  4. reporting to the approved professional body on how they are maintaining their competency and conduct standards.
• money handling
• disclosure
• discipline
• dispute resolution
• any other matters which submitters raise (these obligations are discussed at paragraph 126 and beyond).

115. High level intermediaries will be subject to the highest level of obligation to address the greater risk posed to consumers by incompetent, unethical or unprofessional advice that is presented as being fit to the circumstances of the client. This does not mean, of course, that regulation will protect members of the public from investment risk, or that it is possible to have a zero risk environment. Consumers will still be responsible for their decisions - it's just that advisers who give inappropriate, unethical or negligent advice will find it harder to practise.

"Execution Only" Intermediaries

116. Ministry officials are considering whether to not there should also be a further category of financial intermediary which would include those intermediaries who do not provide advice, but who receive money or property from member of the public for the purpose of buying or selling financial products, in other words, those intermediaries who are providing transaction services.

117. The Taskforce referred to this class of intermediaries as "execution only" intermediaries. An example of an "execution only" intermediary is a broker arranging a share transfer for a client.

118. Ministry officials are considering placing separate obligations on these "execution only" intermediaries on the basis that:

• Intermediaries who carry out transactions behave differently to those who provide advice - for example, it would be appropriate for the execution only intermediary to be subject to money handling requirements, but maybe not the information only intermediary.
• Execution only intermediaries do not have to provide financial advice. The Ministry doesn't want to provide a loop hole by making all financial intermediary legislation dependent upon the giving of financial advice.
• Execution only intermediaries are also likely to need to be subject to "fit and proper" requirements as regulated by the Financial Action Task Force (FATF) which are aimed at ensuring that brokers meet certain positive standards before they can deal with client money and property to help counter risks of money laundering and terrorist financing.

(Refer to paragraph 149 for discussion on obligations on "execution only" intermediaries).

119. The split between those intermediaries who provide "financial advice", and those who execute transactions is not new - in the Investment Advisers (Disclosure) Act, investment advisers and investment brokers have separate obligations as the money handling disclosure requirements only apply to investment brokers.

120. There will be overlap in practice between the two types of roles, so, where an "execution only" intermediary does provides financial advice, then, depending on the type of advice given, that intermediary will also be subject to the obligations attaching to the information only, product marketer or high level intermediary, just as an investment broker has to comply with investment adviser obligation under the Investment Advisers (Disclosure) Act when that broker is acting as an investment adviser.

Individual or a Business

121. It is worth noting that there is no restriction on the legal form that a financial intermediary can take. It may be a natural person, a company, a partnership or another form; some financial intermediaries may employ or have contractual relationships with other financial intermediaries - a large single entity employer such as a bank may fall under the definition of "financial intermediary" by providing financial advice to members of the public (e.g. through publishing public brochures with advice on financial products) just as its employees and contractors are also likely to be intermediaries because of the advice that they given to members of the public.

122. Obligations under the Investment Advisers (Disclosure) Act already apply equally to individuals and businesses who act as investment advisers.³³ Under the proposed co-regulatory model, there may have to be some differences in obligations on financial intermediaries, depending on whether or not an entity is a business or an individual. This is likely because financial intermediaries will have obligations in addition to disclosure, such as belonging to approved professional bodies,³⁴ meeting competency standards, conduct standards and being subject to increased disciplinary standards. It may be more difficult for a business to meet a "conduct" standard, or for a business to be made subject to criminal penalties than an intermediary who is a natural person.

123. Officials will consider how to describe the obligations to be placed on financial intermediaries and whether some obligations may be more easily met by natural person financial intermediaries, than by corporate form financial intermediaries.

124. It is possible that businesses themselves could be approved professional bodies, or that approved professional bodies could have a special "corporate" membership with different conduct requirements for businesses.³⁵ This could address the concerns noted here. It is not the intention that any regulatory arbitrage should result from the design of obligations, or that intermediaries form or disband businesses to avoid the effects of regulation.

125. Ministry officials seek your views on the number of possible high level intermediaries who will be businesses, and also the difficulties that some obligations may pose for certain types of intermediaries.

Back to Top

Technical Tips |Legal Disclaimer |Privacy Statement |Copyright |newzealand.govt.nz