In New Zealand Financial Advisers Regulation

1. There is a 2 layered approach to the regulation of financial service providers and financial advisers in New Zealand. There is a system of registration and a system for authorisation.

2. The law requires all financial service providers, including financial advisers, who operate in New Zealand to be on a public Financial Service Providers Register (FSPR). It also requires advisers to belong to an approved dispute resolution scheme or to the reserve scheme (a scheme appointed on recommendation of the Minister to perform the functions of a default scheme). This gives consumers access to an independent dispute resolution process.

Registration

3. Entities and individuals who:

(a) Live or have a place of business in New Zealand; and

(b) Are in the business of providing financial services (in New Zealand or overseas),

must register to provide that particular financial service on the FSPR.

4. The meaning of ‘financial service’ is defined in section 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008. An early stage of the process will be to identify exactly what services your client wishes to provide. We will then be able to advise on the application of the relevant legislation.

5. In terms of whether individual and entity level registration is required, Regulation 6 in the new Financial Service Providers (Exemptions) Regulations 2010 deals with ‘sole adviser practices’. The NZ’s company will not have to be registered on the FSPR in its own right as a financial service provider if:

(a) The advisor provides the financial adviser services (or a relevant connected service) on behalf of the company and they are the only director, or one of only two directors, and senior manager of the company;

(b) The advisor is personally registered (in their individual capacity) on the FSPR.

6. Applicants must also ensure they are not disqualified from registration. Individual applicants must not be undischarged bankrupts or banned directors. They must have a record clear of fraud and other criminal offences (a criminal history check will be conducted as part of the registration process).

7. All providers must pay the appropriate fees. The initial registration is approximately NZ$420 (including GST) with an ongoing annual fee of approximately $62. Registration is online and relatively simple and your client will presumably be able to register without assistance from us.

Financial Advisers

8. The Financial Advisers Act 2008 introduced minimum standards of professionalism for financial advisers and gives the Securities Commission power to regulate them.

9. The Financial Advisers Act aims to build public confidence in the professionalism and integrity of financial advisers by:

(a) Requiring competence so advisers have the experience and expertise to match a person to a financial product that meets their needs and risk profile.

(b) Requiring disclosure by advisers so that consumers can make informed decisions about whether to use an adviser and follow their advice.

(c) Making advisers accountable for the advice they give.

10. The Financial Advisers Act covers individuals and entities who provide financial adviser services to clients. Financial adviser services included in the Act are:

(a) Giving financial advice.

(b) Providing an investment planning service.

(c) Providing a discretionary investment management service.

11. Whether client need to be authorised depends on the following factors:

(a) Whether the client’s client is retail or wholesale;

(b) Whether the service to be provided is personalised or non-personalised (a class service); and

(c) Which category of product your client will advise on.

12. The Financial Advisers Act focuses the requirement to be authorised on advisers who provide personalised investment advice to retail clients.

13. The category of product, i.e. category 1 or 2, is relevant for personalised services, which are services that take into account the client's individual needs and financial situation or where a client would reasonably expect an adviser to take their particular financial situation or goals into account.

14. The clients will need to become an Authorised Financial Adviser (AFA) if you provide any of the following Financial Adviser Services to retail clients:

(a) Give personalised financial advice on category 1 products including: securities, land investment products, futures contracts and investment-linked insurance contracts. Financial advice covers any recommendation or opinion about buying, selling (or refraining from buying or selling) a financial product.

(b) Provide a discretionary investment management service in relation to category 1 products, i.e., your client decides which financial products to buy and/or sell on behalf of a client, e.g., your client is authorised to manage a client's investment portfolio.

(c) Provide an investment planning service, that is, if your client designs or offers to design a plan for an individual that:

(i) Is based on an analysis of an individual's current and future overall financial situation

(ii) Identifies their investment goals, and

(iii) Includes recommendations or opinions on how to realise those goals.

15. The requirements for authorisation and the process are fairly stringent. They require:

(a) Registration with ETITO (the organisation tasked with ensuring compliance with the educational requirements) and a competence assessment and examinations, as required.

(b) Evidence from the relevant educational institution or industry body of accepted alternative qualifications and designations for proof of competence.

(c) The provision of testimonials.

(d) Evidence of good character.

(e) The preparation of an Adviser Business Statement (ABS).

(f) Online application for authorisation to the FSPR.

16. The application fees are approximately NZ$1,200, with an annual fee of approximately NZ$600.

Ownership by barristers

Whilst ownership by barristers of interests in LDPs gives rise to the same kinds of issues and concerns as dual practice (see para 11 above), the issues here are significantly more acute. Barristers’ involvement is likely to be less obvious to clients. It is essential that such interests are disclosed to clients, where material, and disclosed to the Board so that the impact of them can be monitored as part of the Board’s general jurisdiction to ensure that barristers practice is a way that protects and promotes clients’ and the public interest above their own private interests. As explained below, in some cases ownership would require the barrister to take steps to manage or avoid conflicts that might arise. The responsibility to avoid causing prejudice to his client is, in these circumstances, that of the barrister.

Barristers are advised to consider carefully the implications of owning an interest in an LDP, either directly or indirectly, in circumstances in which they are not employees or managers of that LDP. In order to manage the risks and avoid conflicts of interest and duty from occurring, rules 209 of the Code imposes restrictions and requirements for barristers who wish to own interests in LDPs.