Myles Wealth Management principal Craig Myles and Anderson Lloyd partner Paul Hubbard are raising concerns about the latest proposed changes to the Financial Services Providers legislation (FSP).
On June 11, the Government released the Pre-implementation Adjustments Bill designed to amend the FSP Registration and Dispute Resolution Act 2008 and the Financial Advisers Act 2008 (FAA).
While the stated intentions of ensuring an appropriate degree of care, disclosure, competency and accountability for financial advisers and brokers remained the same, the proposed amendments had introduced substantial changes to the legislation as it stood, Mr Hubbard said.
Most critical to consumers were the newly introduced range of exemptions in the Bill - notably the exemption for financial advice which was provided only as an "incidental part of another business that is not otherwise a financial service".
"The intention of creating this exemption seems to be to exclude the large number of individuals or organisations that merely touch on what would otherwise be financial advice in the course of providing a non-financial service business."
That could include rental car companies routinely discussing car insurance with prospective clients or retail assistants discussing hire purchase requirements, he said.
While most would agree that was appropriate, there was a need for further guidance from the legislators in relation to what was meant by the term "incidental", as it had the potential to significantly affect consumers.
As the legislation now stood, if amended by the proposed Bill, those who provided financial services in the ordinary course of their business were required to be registered under the FSP, including becoming a member of an approved dispute resolution scheme.
If an adviser also intended to give financial on most investment activities, such as buying or selling shares and land investment products, they would need to undertake training and seek and obtain authorisation from the Securities Commission to become an authorised financial adviser under the FAA.
The FAA also introduced stringent disclosure obligations and a code of professional conduct for advisers, expected to be finalised soon, Mr Hubbard said.
"The proposed legislation not only provides consumers access to the dispute resolution process but it also gives the Securities Commission real teeth - the power to prevent advisers from becoming registered, impose significant fines, and, in some cases, impose prison terms.
"But this is the worst of all possible outcomes. People who are not qualified to tinker, can tinker."
Professionals and others who did not provide financial services as a core part of their business but merely as an incidental part to facilitating the carrying out of that business, or as an ancillary activity, would not need to be specifically registered or authorised under the legislation.
Mr Myles said the imposition of a regime on professional advisers, while leaving non-professional advisers free to give financial advice, created a potential mismatch.
"This could result in consumers, the very people the legislation professes to protect, unwittingly being exposed to advice from unregulated `incidental' advisers without the benefit of the protections contained in the legislation."
It created the opportunity for another Blue Chip to emerge, he said.
Blue Chip was a property investment company which collapsed owning millions of dollars to investors, many of them elderly.
Founder Mark Bryers last month escaped prison after pleading guilty to a number of financial reporting charges.
Mr Myles said that taking Blue Chip as an example, while the regime was only ever intended to regulate advice rather than the financial products themselves, the proposed amendments probably made it just as easy for the "Blue Chip scenario" to reoccur.
The new amendments took the focus away from the products the investment advice related to and changed it to what the usual occupation of the adviser was.
"Not only is this piecemeal approach confusing for consumers, it essential creates one set of rules for the professional advisers and no rules for anybody else.
"There is concern the framework is so complex. The risk is that consumers won't easily understand what their rights are. It's got worse since last week. It could mean consumers giving up their rights," he said.
Mr Hubbard said that without greater guidance as to what the term "incidental" meant, it was likely that a legal loophole wider than intended had been created in the financial advisory regime net.
Gaps were starting to appear.
It was recognised that a lot of the incidental advice was likely to be provided by professionals, such as lawyers and accountants, who had their own disciplinary processes.
But there was a definite risk to consumers they would unwittingly miss out on the protections intended for them.
Both Messrs Hubbard and Myles agreed that the only way a consumer could be sure they had the benefit of the proposed protections was for them to use an authorised financial adviser.
Another big issue for financial advisers was compliance costs.
My Myles estimated that compliance with the new regime would add 3% to 4% to costs and financial advisers would have little choice but to pass those costs on to their clients.
"The increase in costs may see some cost-conscious consumers try to avoid using an authorised financial adviser to save money and thereby surrender their protections, without knowing it."
Some of the big winners in the recently released changes had been any advisers to wholesale clients and professionals for whom financial advisory services were not core business activities, he said.
The exemptions for lawyers, real estate agents and chartered accounts had been widened to exempt any relevant service in the ordinary course of business of that kind.
