Plan to tighten law on investment advice

By MARK FRYER

Investment advisers will face tougher regulation if Securities Commission proposals bear fruit.

The commission yesterday released a discussion paper on reform of the law covering investment advice.

Among the proposals: requiring advisers to give more information to clients and would-be clients, making it an offence for an adviser to knowingly recommend an illegal investment, allowing the commission to prohibit a person from giving advice, and changing the definition of "adviser".

The commission has called for submissions on its proposals by October 22, and hopes to give the Government its recommendations in the first quarter of next year.

The acting chairman of the commission, Michael Webb, says one of the reasons for suggesting changes in the law is the upsurge in the number of investment scams, often overseas-based but often offered through New Zealand advisers.

At present, says the commission, advisers are governed by a number of laws and by several agencies, but no single body is responsible for enforcing the law as it relates to investment advisers

One of the main pieces of legislation governing the business of giving investment advice is the Investment Advisers (Disclosure) Act, passed in 1996.

But, says the commission, "to date no enforcement action has been brought under the act to our knowledge. We consider this speaks for itself as to the effectiveness of the present remedies."

Under the act, advisers are obliged to provide information in two categories: things which must be revealed, and other items which have to be disclosed only if a potential client asks.

The second category includes information such as the type of investments the adviser advises on, whether they deal only with investments from certain sources, their qualifications, experience, and what they stand to gain.

The commission wants the division between the two categories removed, so advisers would have to reveal a single list of information before giving advice.

The discussion paper also asks whether the definition of "adviser" should be changed. At the moment it excludes people working for the issuer or promoter of a security, so bank or managed fund employees may not be covered by the disclosure requirements.

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NZ Securities Commission