Speech: Financial Advisers - Dr Pita Sharples
Tena koe Mr Speaker.  Tena tatou katoa.

The Maori Party is pleased to support this Bill, to enable a clear distinction to be made between financial advice that carries significant risks for consumers; and advice that carries minimal risks.

The intention of the Bill is honourable, but well overdue.

An analysis of 25 financial advisory firms by Stephenson Thorner and fi360 Australasia, released earlier this year, concluded that many financial advisers may look trustworthy but they are potentially risky. 

The risk factor is all around this concept of trust.

The study showed that most New Zealand advisers ran their business with an inadequate duty of care - in fact the study went as far as to say their reports were ‘verging on dysfunctional'.

Just how dysfunctional some of the sharks in the industry have been is old news now, with the fact that more than a dozen New Zealand finance firms have gone under in the past eighteen months.

That's nearly two billion dollars in investors' money, down the tubes.

That something had to be done is not in dispute.  There have been frequent and increasingly urgent calls for tighter government control to tidy up the sector and to make it more accountable to its investors.

And it's not like we haven't been down this road before.

Many of us remember the mortgage scandals of the mid 1980s when an unregulated sector of the finance industry extracted millions of dollars from what could only be called ‘unsophisticated investors'.

Now, that's the flash name for what the industry calls ‘Mum and Dad investors', a segment of the population including Maori, who have been investing their savings without necessarily realizing the risk that they are exposing themselves to.

In the 80s, the contributory mortgage companies screwed millions of dollars from New Zealanders, lured by the promise of a quick buck and high interest rates.

The classic was RSL - Registered Securities Ltd - which when it collapsed in July 1988 had ratcheted up loans to the sum of $97.8 million.  Over night more than half was deemed irrecoverable.

But there is a startling difference between the contributory mortgage companies and the risk of non-regulated financial companies and financial advisers.

Back in mid 1988 when RSL hit the bottom of the market, the then Justice Minister Sir Geoffrey Palmer immediately took decisive action by amending the Securities Act.

His amendments covered contributory mortgages and introduced sector specific regulations.

And yet here we are twenty years later finally getting around to introduce regulations to increase prudential standards.  A move we support but action which should have taken place a lot earlier.

The thing is, we're not talking about people getting sucked into the Nigerian multi-million dollar banking scams.  You know the type: A tragedy has befallen us.  Your long lost uncle Nigel has drowned leaving you the sole benefactor.  All we need is your bank account.

These are every day New Zealanders -- the mythical middle New Zealanders - who are being stung here.

We're not talking about businesses or corporates - these are every day citizens that have been placed at risk.

What we are talking about here - the people that successive Governments have ignored - are humble, trusting investors, many of whom have entrusted their life savings in finance companies.

People whose lives have literally been turned inside out by the callous squandering of their funds.  And what's worse, is that they not only have to endure the shame and guilt of having their funds squandered, but they're literally powerless - unable to afford the cost of legal advice.

The Maori Party has always stood up for people who too often are voiceless in the corridors of power, and this Bill is no exception. 

Sure the Bill is a good thing - the regulatory framework should promote confidence and participation in financial markets by investors and institutions, and that's all positive.

But what about those who have been burned by financial advisors teetering on the brink of collapse?  What measures have been put in place to look after their interests? 

Will the Securities Commission be launching an inquiry into how these large scale losses were able to occur?

What support will be available for clients who have lost money to launch court proceedings against financial advisors who have been negligent?

It all comes down to basic truths around justice and the nature of power.

One of the tikanga of the Maori Party around kaitiakitanga, encourages us to promote the active exercise of responsibility in a manner beneficial to resources and the welfare of the people.

What that means in everyday language, is that we promote the goals of living in a society where crooks and shonky advisers are not welcome.

In other words, that there are sanctions in place to ensure these types of people - people who are negligent in their responsibility to care for the resources and collective good of the community - are not able to prosper.

Now one could say, as the National Business Review has recently, that there's been sanctions against murderers and robbers for centuries, but society still hasn't been able to eradicate such crimes.

But for my money, I want to live in a society where careful analysis and prudent assessment of risk is routinely part of the package for any financial deal; where credibility and experience matters, where an individual can make an informed judgment about the qualifications and professional standing of a financial advisor before leaping in.

In reality, Maori businesses don't usually use finance companies to finance their business developments.  The interest rates are too high, and often security is required over land, so it's a no go area.  Banks are more likely to secure loans over cashflow, stock, equipment and machinery without having to rely on putting our whenua at risk.

The Maori Party will support this Bill - we think it provides changes necessary to allow deposit takers to be better monitored and evaluated and at the end of the day that's got to be better for the nation and all our peoples to move forward. 

But notwithstanding all the regulations, approvals, enforcements and remedies included in the scope of the legislation, the key will rest on the conduct obligations outlined in the Bill.    The Bill specifically obliges financial advisers to act with integrity and competently.  Integrity - a concept that can't be regulated for but a concept, nevertheless, which must be a foundation for the changes to work.

We need protection for consumers and we need the changes of this Bill to ensure there is an effective environment operating.

Finally, while we support this Bill at these final readings we do wonder why it was separated out from a Bill coming up later in the order paper - the Financial Service Providers (Registration and Dispute Resolution) Bill 2007.  Surely, logic would demand that these two Bills should be read together to ensure due focus on the health of the sector.