KEY POINTS:
The Securities Commission will move fast to ensure strict new disclosure rules - making financial advisers' economic incentives transparent to their clients - are being followed.
However "cowboys" who are not members of a professional body or who operate under the commission's radar are likely to escape its scrutiny.
New disclosure laws for financial advisers and brokers come into force on February 29 and the commission yesterday said it would contact advisers and brokers next month to check their compliance.
"We expect advisers and brokers to comply with the law as soon as it takes effect," said director of primary markets Kathryn Rogers.
The new laws have not come too soon. In recent years thousands of investors had their cash channelled into risky finance companies such as Bridgecorp by financial advisers because those firms offered them higher commission rates than more secure companies.
Under existing law advisers were not obliged to disclose commissions or other incentives to their clients as a matter of course.
It has been reported that a number of investors who lost money in recent finance company collapses are preparing legal action against their advisers on the grounds that the advice supplied was driven by undisclosed commissions rather than the suitability of investments.
Meanwhile, at present there is no obligation for advisers to be registered with an industry body or even to be qualified to offer advice.
That will not change until legislation, introduced to Parliament only this week, takes effect at some point in the future.
Yesterday a spokeswoman said the commission had been doing its very best to track down financial advisers.
"Most of these people advertise or have their names in phone books. We can't say we have an exhaustive list."
Under the new laws disclosure statements must be given to a client before any advice is given or any investment money is received. It must contain specific information about the adviser, the products they give advice on, and how they get paid.
Advisers' and brokers' advertisements must also comply with the new law.
From the end of the month it will be a criminal offence not to disclose information that the adviser or broker knows should be disclosed, to have a misleading, deceptive or confusing disclosure statement or advertisement or to contravene an order made by the commission.
Those offences carry fines of up to $300,000 and advisers and brokers can be banned for up to 10 years.
