Money: Anyone can tell you where to put your cash

Question: What's an investment adviser?

Answer: Someone who gives investment advice.

Simple as that? - Simple as that.

Don't they need a licence? - No.

What about training? - They don't need that, either.

If you go looking for advice on managing your money, it's worth keeping those facts in mind, because, under New Zealand law, anyone can call himself/herself an investment adviser or financial planner.

He or she may have a string of university degrees, years of experience and an unsullied reputation for honesty.

Then again, the person you turn to for help managing your hard-earned savings may turn out to be a convicted fraudster whose only priority is to earn as much as possible in commissions.

This is not the way things work elsewhere; while the laws vary from place to place, most developed nations require advisers to be licensed with a regulator of some sort, such as the Securities and Exchange Commission in the US, the Australian Securities and Investments Commission or the Financial Services Authority in Britain.

Here, rather than controlling who can offer financial advice, the law requires advisers to disclose certain information.

Advisers are still subject to the same laws as anyone else; if they commit fraud, for example, they could face criminal action, and it is possible to sue an adviser for giving bad advice - if you have the money and the stamina.

But the specific law that applies to advisers here - the Investment Advisers (Disclosure) Act of 1996 - doesn't place any limits on who can act as an adviser.

That law defines an "investment adviser" simply as anyone who gives investment advice in the course of their business or employment.

"Investment advice" is defined as "a recommendation, opinion, or guidance given to a member of the public in relation to buying or selling [or not buying or selling] securities" - that is, shares, debentures, investment-linked life insurance policies and units in a unit trust, among other things.

That definition means the act covers not just people who call themselves advisers, but others such as sharebrokers, lawyers and accountants who give investment advice (but not journalists, who are specifically exempted).

The law's goals are modest: to make sure that investors are given certain basic information on the person or organisation advising them.

Before advisers give you any investment advice, and before you give them any money, they must provide specified information - whether they have any convictions involving dishonesty or have ever been made bankrupt, and how they will handle your money.

If you ask certain specific questions, the act sets out a list of additional things the adviser must tell you, in writing, within five working days.

That list includes his or her qualifications, experience, and whether he or she has a financial interest in giving the advice.

A full list of the facts that must be disclosed can be found in a booklet called Test Before You Invest, published by the Retirement Commissioner (available by calling 0800 456-585).

One of the things you are trying to find out is whether the adviser is likely to have a bias towards a certain type of investment, because of his or her experience or the way they are paid. It is also worth asking potential advisers whether they belong to an industry group such as the Financial Planners and Insurance Advisers Association.

The association's website may be useful in choosing an adviser (click on "Why choose an FPIA member").

Another website worth looking at is Good Returns - click on "Find an adviser" for a list of advisers and a brief description of their qualifications.

But, ultimately, qualifications and memberships are no guarantees.

To find a good adviser, use the same approach as for finding an expert of any kind, whether it is a dentist or a mechanic - ask friends, shop around, ask for references from satisfied customers, get all the information you're entitled to, do research by reading a few basic investment books, and question the advice you're given.

Links


Financial Planners and Insurance Advisers Association

Good Returns