The Financial Advisers Act is legislation passed by the government of New Zealand in 2008. The act contains regulations aimed at ensuring efficient delivery of financial adviser services, and creating public confidence in the financial and securities brokerage industries. The act defines who is a client of a financial adviser, and the type of information that constitutes financial advice. According to the act, financial advisers have to disclose certain information to clients, and brokers must hold client money in trust accounts.
Clients
If you act as a financial adviser, you are subject to the regulations in the act. This applies whether you receive a payment for providing your service. Anyone who receives your advice with regard to investment business is your client. However, if you offer your services to another person working for the same company as you, and your advice is offered to help that person decide upon a course of action on behalf of the company, that person is not a client. The act recognizes both wholesale and retail clients. Wholesale clients are corporate or professional clients, such as other financial advisers, brokers or investment companies. Retail clients are private individuals seeking advice regarding their own personal investments.
Financial Advice
You are providing financial advice whenever you give an opinion or make a recommendation to a client to buy or sell a financial product, such as shares, bonds, mortgages or a life insurance policy. You may offer your advice or opinion either in writing or verbally, but both forms of advice are bound by the regulations contained in the act. You are not giving financial advice when you provide simple information, such as the terms and conditions that apply to the purchase of a financial product, or the price of the product. If you offer an opinion regarding a class of products, rather than an individual product within that class, you are not providing financial advice. For example, if you advise a client that in your opinion, government-issued bonds are currently a good investment, this is not financial advice. If you advise your client to buy bonds from a specific issue, this is financial advice.
Disclosure
Financial advisers must disclose certain information to retail clients. This information is set out in Section 23 of the act and includes the contact information for the financial adviser, including the financial adviser's address and telephone number, along with any other method a client may use to contact the financial adviser, such as email. Disclosure must include a schedule of fees that a financial adviser charges for providing financial services, and must include any relationships with organizations providing financial products. If you are a financial adviser and you receive a commission from a company selling a financial product, such as a mortgage, you must disclose this information to your clients. Financial advisers must also provide information telling clients the procedure for settling any disputes that may arise.
Client Money
A financial broker who buys and sells financial products such as shares and bonds on behalf of a client, must hold any money belonging to the client in trust for the client. Whenever a broker receives money from a client, the broker must pay the money into a New Zealand bank account. The bank account containing client money must be a trust account, so that the broker cannot use client money except to make purchases as instructed by the client. Brokers are not allowed to use client money to settle debts owed to creditors. Even if the courts order a broker to settle debts owed to a creditor, the executors of the court order cannot use client money held in a trust account to settle the broker's debts.
Tags: financial adviser, financial advice, providing financial, client money, financial product