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Financial advisers regime to be strengthened

Financial advisers regime to be strengthened

Financial advisers will have to disclose all relevant information to clients under strengthened legislation, Commerce Minister Lianne Dalziel said today.

The Government, in line with recommendations made by the Securities Commission, is to improve the information disclosure regime set out in the Investment Advisers (Disclosure) Act 1996.

“Investors must be able to receive the disclosures they need to make informed decisions about whether or not to take advice offered by investment advisers,” Lianne Dalziel said.

Under the current regime there are two forms of disclosure. The first is mandatory disclosure which includes information about any convictions an adviser has for dishonesty or bankruptcy during the preceding five years, and the procedures of the broker relating to the receipt or disbursement of money or property.

The second form of disclosure is at the request of the client, and includes among other things the qualifications and experience of the adviser and matters that could indicate conflicts of interest.

Lianne Dalziel said the problem with that approach was that it assumed that the client was sufficiently well informed to ask for the information.

"The single disclosure regime will make the process much more transparent and effective, and as financial advisers had to be prepared to provide the second tier of disclosure, it will ultimately reduce compliance costs to have all the information in a single document.

"The government is also going to make it an offence to recommend or deal in illegal offers of securities. Given that advisers obtain much of their income from commissions based on recommending certain products, we need to ensure there is a deterrent for dealing in illegal offers.

"As people rely on advice in these situations, it is important that the financial advisers take some responsibility for ensuring that the rules relating to offerings are complied with.

"The Securities Commission will also be given the power to enforce investment adviser law. Currently there is no public enforcement body, and while a number of people may be affected by an adviser breaking the law, it may not be worth any individual taking an action on their own due to the potentially high cost of taking an action and difficulties in obtaining evidence."

The Minister said that in the interests of consistency, the detail of the improvements to the disclosure laws and enforcement would be considered within the review of securities trading law that is currently underway. The public will have another opportunity to provide comment on the detail of improvements to the Act late next year.

“These improvements should resolve some of the issues about ensuring accurate and timely disclosure by investment advisers. However, they do not address all the issues surrounding the quality of advisers and other financial intermediaries.”

Lianne Dalziel said the Government was committed to protecting investors from unscrupulous investment advisers, and had asked officials to examine the costs and benefits of introducing some form of licensing regime.

"Licensing regimes exclude incompetent or potentially unscrupulous people from operating in the market, and are common overseas.

"I have asked officials to consider the costs and benefits of such a regime, having regard to international practice and experience.

"As one of our objectives is to deepen the Trans-Tasman market for financial intermediaries, we will look closely at the Australian experience. However, we will also take into account the fact that New Zealand is a smaller market and therefore any licensing regime would have to be appropriate for our market.

"I am aware the issue of licensing will generate some debate, and I will ensure that full consideration and consultation is undertaken before the government makes any decision on the implementation of a licensing regime," Lianne Dalziel said.

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