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Financial Advisers legislation: Implications for lawyers

22 November 2013

A clear understanding of the 2008 Financial Advisers legislation is important for all lawyers in the context of their daily practice.

Although the intention of this article is to assist lawyers understand the practical application of the legislation, it is always recommended that lawyers seek professional advice where they are not certain whether an exemption applies to a service that they provide. A safe approach for lawyers to adopt to ensure they are not deemed to be giving financial advice is by meeting the exclusions as defined in s10(3) of the Financial Advisers Act 2008 (FAA).

Before assisting clients in relation to financial products and financial advice, lawyers should ensure their own competency in this area. This is required to fulfil their fundamental obligations as lawyers under s4(c) of the Lawyers and Conveyancers Act 2006 (LCA) and to comply with Rule 3 of the LCA (Lawyers: Conduct and Client Care) Rules 2008 (RCCC).

Background

In 2008, both the FAA and the Financial Services Providers (Registration and Dispute Resolution) Act 2008 (FSPA) were enacted. The legislation was accompanied by a code of conduct developed for those advisers wishing to be Authorised Financial Advisers (AFAs) under the FAA. The FSPA and the FAA were fully in force from 1 December 2010 and 1 July 2011 respectively. From 1 December 2010, the FSPA required any person who is a financial service provider, either as an individual or employed by an entity that is a registered person, to be publicly registered.

The FAA legislation regulates the following business activities:

  • giving financial advice;
  • providing an investment planning service; and
  • providing a discretionary investment management service.

AFAs must be registered, qualified and licenced. Other financial advisers may register as individuals or be employed by an entity that is a registered person. This category is neither qualified nor licenced.

Exclusions

Section 10(3) FAA – When person gives financial advice

“However, a person does not give financial advice for the purposes of this Act merely by –

a) providing information (eg, the cost or terms and conditions of a financial product); or
b) making a recommendation or giving an opinion relating to a class of financial products; or
c) making a recommendation or giving an opinion about the procedure for acquiring or disposing of a financial product; or
d) transmitting the financial advice of another person (unless A gives A’s own financial advice in doing so or holds out the transmitted financial advice as A’s own financial advice); or
e) recommending that a person consult a financial adviser.”

Lawyers will not be considered to be providing financial advice if they engage in any of the activities listed above.

Exemptions

Section 13 (1) FAA – Exemption for incidental service

“A service is not a financial adviser service for the purposes of the Act if the service is provided only as an incidental part of another business that is not otherwise a financial service or does not have, as its principal activity, the provision of another financial service”.

Lawyers will not be considered to be providing financial adviser services when providing services incidental to their principal course of business, provided the principal business in which they are engaged does not include the provision of financial services as a principal activity.

Section 14 (1) (d) FAA – Other exemptions

“A lawyer, incorporated law firm or registered legal executive providing a relevant service in the ordinary course of business of that kind”.

Under this section lawyers are exempted as a result of their professional occupation. Lawyers will not be considered to be providing financial adviser services when providing services in the ordinary course of business of being a lawyer.

Therefore the FAA defines when a person gives financial advice, and conversely when excluded from doing so, and also provides two potential exemptions that may be available for lawyers to use. As giving financial advice is only one of the three financial adviser services regulated under the FAA, as referred to earlier, these exemptions are therefore potentially available to be used by lawyers for all three regulated financial services.

In summary, lawyers can give financially related advice only if:

  • the advice is not deemed financial advice (as defined under s10 (3) FAA); or
  • if the activity is covered by an exemption; or
  • if they are appropriately qualified under the FAA regime to undertake the activity.

Financial adviser qualification

Regardless of the availability or otherwise of exemptions, lawyers should consider whether to secure AFA status or attain another relevant financial advice qualification to enhance market presence and objectively validate their competence to offer this type of service.

The fact that lawyers may be able to rely upon an exemption does not necessarily mean that they should. It may be the case that the client is better served by referral to a professional adviser who is competent to deliver the services required.

This guidance should be undertaken with reference to s4 of the LCA, which refers to the fundamental obligations for lawyers in practice. One of these is for the lawyer to act in accordance with duties of care owed by lawyers to their clients. Further, RCCC Rule 3 states that a lawyer must always act competently with a duty to take reasonable care. Giving sound financial advice can require a considerable degree of knowledge and expertise in the area concerned.

Summary

Although it is believed that financial market regulators may choose to read the FAA exemptions narrowly, any interpretation will still need to be consistent with the original policy intention of ensuring that a regulatory framework exists for all individuals choosing to offer financial advice. There are potential grey areas with the occupational exemptions in the FAA, which is why it is important that lawyers do not take an overly technical approach to interpretation but consider their clients’ needs first and foremost, and their own competence to provide the advice.

To further assist lawyers, the Law Society has prepared a number of illustrative scenarios that lawyers in practice may face together with some ensuing discussion. These can be found on the Law Society website at http://my.lawsociety.org.nz/in-practice/practice-briefings/Financial-Advisers-Legislation-Implications.pdf.

As set out at the beginning of the article, lawyers should always seek specialist professional advice where they are not certain whether an exemption applies to a service that they wish to provide.

Last updated on the 17th March 2016