Financial advisers lose limited liability under new Act

Financial advisers need to be aware that the new Financial Advisers Act will deny them the protection of operating through a limited liability company, making them personally liable for any financial advice they may give.

The warning was delivered by Chapman Tripp partner, Tim Williams, in a presentation to the recent IFA Conference on the many consequences of the new Act, which is expected to come into force on 1 December 2010.

Williams said that the new requirement that only individuals can provide financial advice was not widely understood and may not have been thought through entirely.  He has suggested that officials reconsider the Act in this respect.The prohibition will also mean that broker tip-sheets will need to be attributed to individuals rather than coming from the broker firm.

Some of the other anomalies identified by Williams were:

  • The ban on listed companies giving market guidance.  This is inconsistent with the requirement in the NZSX and NZDX Listing Rules that listed companies give guidance through NZX when required under NZX’s continuous disclosure rules.
  • The removal of the current general relief for issuers in favour of relief for offering documents and advertisements only.
  • The removal of the current relief for procedural advice on how to invest (rather than what to invest into) except in relation to KiwiSaver.
  • The failure to provide relief for financial advisers, who are not journalists, writing in the media on specific products, as frequently occurs.

“When it becomes effective, the Financial Advisers Act will apply more broadly than the current disclosure laws.  It will apply when advising on an increased range of products and even when giving advice to wholesale investors,” Williams said.

“The Act also will extend the current disclosure obligations to include requirements for authorisation and registration and will set up qualifications and conduct standards.  The Financial Service Providers (Registration and Dispute Resolution) Act will impose a requirement for financial advisers to have dispute resolution services available.

“While there will be opportunity to include exemptions in the Regulations, which are currently being prepared, if the prohibition on providing financial advice through companies is to be removed, amendments to the Act will be required because it would be such a fundamental change,” he said.

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