KEY POINTS:
Michael Pollard, partner at law firm Simpson Grierson, answers questions about new rules for investment advisers and brokers.
What do the new regulations cover?
The new rules, which came into effect on February 29, are the first this year on regulating investment advisers and brokers. They are intended to increase client awareness about advisers and brokers by ensuring adequate disclosure is made, so people can make informed decisions about whether to use an adviser/broker and to take their advice. The new rules also aim to promote an efficient environment in which the public has confidence in the professionalism and integrity of advisers, and to allow New Zealand to better meet international regulatory standards.
What sort of people are being affected by these new regulations?
They will affect investment advisers and brokers, and anyone to whom they provide services. Broadly speaking an investment adviser is a person or business who gives investment advice about securities to a member of the public. An investment broker is a person or business who receives investment money or property from people.
What advice is considered investment advice under the new rules?
This includes any recommendation, opinion or guidance about investing in securities given to a member of the public. The Securities Commission, which oversees the regime, has stated that suggesting a particular investment is a good one to make, or commenting on how an investment might suit an investor, constitutes investment advice.
What does an adviser have to tell investors before giving advice?
Before giving advice, an adviser must disclose in writing information regarding the adviser's qualifications and experience; details of criminal convictions of certain types, bankruptcy, management bans or expulsions from professional bodies; the types of securities on which he or she advises; fees the adviser will charge in relation to the securities in question; and the nature and extent of any interest or relationship the adviser has which is reasonably likely to influence advice given.
What penalties can be imposed for not telling the whole truth?
The Securities Commission can enforce the obligations of investment advisers and brokers. Non-compliance could result in the commission of a criminal offence. Generally speaking, fines are $100,000 for an individual and $300,000 for a business. The commission also has the power to seek financial penalties and banning orders from the courts, and make prohibition, disclosure and corrective orders.
Can a member of the public sue when an adviser/broker breaks the new rules?
A compensation order may be sought if loss is suffered because the new rules are not complied with.
What about free advice or advice given to a business? And what about journalists?
The rules cover advice given by a person in the course of their business or employment. There will be examples where advice given casually is not caught by the rules, but context will be important to determine this. Journalists are excluded if it's their principal occupation.
You mentioned that these new rules are the first instalment. What other changes can we expect?
More changes expected in the third quarter of this year include rules which establish a registration system for financial service providers and an industry-based dispute resolution service. These rules will also impose licensing requirements and disclosure obligations.
