Disclosure under FAA for discretionary investment
management service – inconsistent with DIMS
licensee 124 Section 576 amends section 22 of the FAA by
providing that, in the case of a financial adviser provisioning a
personalised discretionary investment management service to a
retail client, disclosure under the FAA must be made both:
124.1 before the investment authority is
124.2 before any exercise of that authority
(unless there has been previous disclosure it is not "out of
date" under section 29).
125 By contrast, for a DIMS licensee under the
Bill, disclosure is only required:
125.1 before the investment authority is
granted (section 432(1)(a)), and
125.2 if prescribed under section 426.
Importantly, there is no default requiring further disclosure
before the investment authority is exercised, which would be
introduced into the FAA by section 576.
126 We submit that:
126.1 the disclosure regimes under each piece
of legislation should be aligned, and
126.2 the preferable approach is to prescribe
circumstances in which updated disclosure must be made, rather than
having a default position of requiring disclosure before any
exercise of the investment authority
126.3 the new section 29A of the FAA (also
introduced by the Bill), which allows further information to be
prescribed for disclosure to recipients of a discretionary
investment management service under the FAA, is sufficient to align
it with the DIMS licensee disclosure provisions
126.4 the new section 22(1A)(a)(ii) of the FAA
(introduced by the Bill), which sets the default position of
requiring disclosure before any exercise of the investment
authority, should be removed.
Duties of discretionary investment management
service provider under FAA 127 The new section 36C of the FAA, introduced by
the Bill, will require a provider of a discretionary investment
management service to provide that service with care, diligence and
skill. This is sensible.
128 However, one key point arises from this new
statutory standard: it overlaps with the existing care, diligence
and skill requirement of section 33 of the FAA, applying to all
financial adviser services. Section 36C is, therefore, redundant.
If retained, it should clarify that a person cannot have liability
under both section 36C and section 33 in respect of the provision
of a discretionary investment management service.
Amendments to KiwiSaver Act 129 We submit (see section 607) that in view of
provisions such as section 133, the provider concept
should extend to lawful delegates (unless the context otherwise
requires) in the case of retail as well as restricted schemes. For
both types of scheme, there will be numerous situations where
particular administrative functions are performed by a delegate of
Conversion of governing documents to separate governing
documents 130 KiwiSaver Amendment Act 2011 equivalent of
section 69(3)(b) is proving inappropriately restrictive in
practice. We submit that given its enabling purpose, section
69(3)(b) should be amended so as not to restrict the inclusion in
replacement governing documents of amendments that, while not
connected to the purpose of the section, are otherwise permitted by
This is part of a blog series about how automated advice providers can ensure compliance with the best interests duty.
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