Securities Commission goes after investment cowboys

Friday 31st August 2001

By Chris Hutching

Securities Commission proposals to tighten up rules for investment advisers fall well short of the compulsory registration scheme in Australia.

The commission wants to become the statutory organisation for monitoring financial intermediaries with power to peruse disclosure documents. It also wants to ban practitioners but says the question of compulsory licensing must lie with the government.

The commission is mainly concerned about disclosure about investment advisers' backgrounds and experience, and their commissions.

The Investment Advisers (Disclosure) Act provides for a two-tier regime with a distinction between initial disclosure and request disclosure. Unless investors request all information they will not receive it.

Similarly, clients may not be aware of relationships between investment advisers and promoters and issuers of investments. The commission also recommends advisers be stopped from providing information about dubious and illegal investment schemes.

The principle of caveat emptor is likely to remain paramount. Investment advisers will still be driven by commissions and investors will remain tempted by legitimate but unrealistically high-yielding securities.

Regulation has been a hot topic among investment advisers, accountants, lawyers, sharebrokers, mortgage brokers and forestry consultants in recent months.

Some have begun forming associations in efforts to stave off heavy-handed regulation.

For example, a new financial planning network modelled on Australia's compulsory compliance regime had about 20 prospective members, new general manager Bob Lissington said. Professional Investment Services, as it is known, is not a franchise and not quite a network but it offers members various administration services, marketing and professional standards aimed at helping legal and accounting practices establish or maintain their own in-house investment advisory and financial planning services.

Members of the Mortgage Brokers Association have discussed an association similar to the Mortgage Insurance Association of Australia. Auckland-based Bell Gully lawyer Jonathon Flaws said about a quarter of mortgage business was written by brokers. One prominent broker, Miranda Caird, appears to be in a minority with her calls for compulsory licensing.

The Institute of Forestry has introduced a professional registration regime.

Financial Planners & Investment Advisers Association chairman Paul O'Brien advocates partial regulation requiring financial intermediaries to belong to a relevant association of their choice that upholds a code of ethics and has education programmes and disciplinary procedures.

"About 40% of the advisers in this country are not members of any association. But if you require a centralised government-registration scheme for all practitioners there may be several classes of people who will be disadvantaged," he said.

The report is available from www.nbr.co.nz and www.sec-com.govt.nz

Comments from our readers

No comments yet