Last evening Doug Bailey and Dr Andrew Butler of Russell McVeagh presented to the National Party’s Blue-Libs a plea for the party to upgrade what Andrew called "the Bill of Not Quite Rights" (the NZ Bill of Rights Act 1990). Among other recomendations Andrew urged strengthening the duty on the Attorney General to report on whether Bills before Parliament are inconsistent with NZBORA and a "forced response" from the government when there is an inconsistency, requiring the government to say if and what it will do about it.
Among the Bills that desperately needed an adverse NZBORA opinion was what is now the Financial Advisers Act 2008.
That Act completely over-rides section 14 of NZBORA, which reads "Everyone has the right to freedom of expression, including the freedom to seek, receive, and impart information and opinions of any kind in any form". Perhaps the economic wizzes responsible for Securities law have a version of section 14 specially for them, showing a hidden codicil that says "but not speech about money or property or the honesty or competence or prospects of people in business".
It is not as if the drafters of the Act showed that the law is "demonstrably justified in a free and democratic society" to fit the weasel words in section 5 of NZBORA that allow breaches of the principles of the NZ Bill of Rights Act when the judges or Crown Law feel like it.
The new law is complex but the effects can be summarised simply. I will outline them at 12-30 pm today at a Securities Law conference at the Duxton Hotel in Wellington.
When it comes into force there will be a $100,000 fine for:
a) broker who explains on the radio or television why a company is doing well or badly and should be sold;
b) Brian Gaynor for any acid comments to discourage bad investment, or praise for strong companies, unless he can show that despite the common description of him as a funds manager he is actually entitled to an exception for journalists;
c) a broker who acts on phoned instructions from clients he’s known for decades, instead of insisting they give him orders in writing.
There’ll be a $5000 fine for:
a) b) a financially savvy blogger who earns money from ads on his blog, if he says something like, "steer clear of Bridgcorp/Blue Chip - Petriecivic/Bryers will lose your money";
b) a lawyer who replies honestly to a question about what he thinks of a moratorium or buy-out offer for dud finance company stock (because the lawyer exception applies only to advice that is "a necessary incident of legal practice". Note that it is not just the lawyer’s practice. It must be necessary to legal practice generally);
c) a kindly employer who advances wages to an employee to pay off the finance company before repossession, or organises for the employee to go to his bank, with a recommendation to replace loan shark credit with a regular bank loan (because the employer exception dies if you express an opinion about suitability of "the product");
d) the accountant uncle who dares to respond to the university graduate’s question about how to get the best interest from the bank on the savings accumulating against the day they’ll pay off the student loan (accountants are exempt only for advice that is a necessary incident of accounting practice).
Without the slightest evidence that "competent" financial advising can be taught, or that it consists of more than making sure you recommend what nearly everyone else is recommending at the same time, the goverment is straining to bring in a comprehensive occupational licencing scheme. It will effectively prohibit discussion of matters financial by anyone who might conceivably know what they are talking about, unless they pass exams and register as professional financial advisers, or work for a company that is registered.
At a time when the buzz demand is for more "financial literacy" in the Cameron Task Force’s words, the unconstrained debate that best achieves an informed public is being regulated out of existence. This law will ensure a steepening of New Zealanders trajectory to financial oblivion, a trajectory usefully shown by the Cameron Task Force Progress Report of 31 July. This elite cadre of financial advisers are to acheive what all the world’s experts could not acheive, and unaided by unregistered amateur opinion avoid "undesirable outcomes" for investors.
The Task Force recommendations in December were timid, but dumped on by the Select Committee (as I’ve mentioned previously). Their latest report gets as close as they dare to saying "dump your stupid new financial advisor law", by saying they have worries about its implementation.
I’m to comment today on the likely fate of the Task Force’s other work. Given the $11.6m just allocated to be wasted on the Code to govern the new advisory profession, I predict even their timid other reform proposals will be meat too strong for the officials who govern in this area.
Securities law does not need anything complex. the critical thing is enforcement of simple law, ensuring that crooks know that dishonesty will land them in prison. Instead successive governments and the Securities Commission prefer to think up shiny new laws rather than put in the hard and boring work of making sure what they’ve already got means what it says.
The mudslide of new law on financial advisers is a pitiful subsititute for updating and enforcing the century-old law against secret commissions, and enhancing the defamation law protection for journalists and others who dare to express adverse views of people with enough money to issue gagging writs .
It is breathtakingly stupid to head in the opposite direction, with threats to legally shoot anyone with the presumption to express views on matters financial without a licence.
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