Watchdog focuses on advisers

By IRENE CHAPPLE

Investment advisers will face tougher scrutiny if law changes recommended by the Securities Commission are enacted.

The recommendations have been applauded by one industry body, the Financial Planners and Insurance Advisers Association.

Among the changes the commision has asked Minister of Commerce Paul Swain to consider are: mandatory disclosure of information that may lead to conflicts of interest, strengthening enforcement of the law as it applies to advisers and making it an offence to recommend an illegal investment.

The proposals were mooted in a discussion paper issued by the commission last year, which drew more than 40 submissions.

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

The act has never been used to enforce action against an adviser, and commission chairwoman Jane Diplock said issues of non-disclosure were not a serious problem in New Zealand.

However, the recommendations would strengthen the integrity of the investment process in New Zealand and improve public confidence.

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

The second category includes information such as the types 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's discussion paper called the two-tier system arbitrary, because a potential client may not know what questions to ask. It could cause problems if, for example, a client believed advisers with limited qualifications were more knowledgeable than they were.

The chief executive of the Financial Planners and Insurance Advisers Association, Phillip Matthews, said its members - around half of New Zealand's 4000 advisers - adhered to a strict disclosure regime. But membership was voluntary and changes in law would mean all advisers would be required to disclose their interests.

Mr Matthews said the association supported the proposals. He believed it would not adversely affect the industry and would make the public better informed.

Ms Diplock said details on enforcement of the law, if changed, would be worked out after the Government had responded to the proposed reforms.