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Adviser laws to be toughened

By Philip Macalister

Monday 28th July 2003

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Commerce minister Lianne Dalziel has released more details on how she proposes to toughen up laws governing investment advisers.

She has confirmed that changes will be made to the way advisers disclose information, but she has also widened the definition of advisers to include "employees, agents and persons otherwise associated with the issuer, promoter or trustee who give investment advice."
"I note that this extends the application of the provisions, so that a larger part of the investment adviser community, eg bank officers, are included within the definition," Dalziel says in a Cabinet paper on the changes. "However, I consider it is important that the regulation apply unless a good case can be made for exempting particular sectors."

Dalziel has also expanded on the powers the Securities Commission will have to prohibit or ban advisers.

She says if the Commission wishes to make an order it has to give the adviser 24 hours written notice and the opportunity to be heard before such an order is made, or a shorter period of notice for urgent orders, as well as a fine of $30,000 for non-compliance.

Also the commission will have the ability to suspend or prohibit investment advisers' or investment brokers' disclosure documents and advertisements.

These powers can be used where an investment statement is likely to deceive, mislead or confuse, where it is inconsistent with a registered prospectus, or where it does not comply with the act or regulations.

The provisions will allow the commission to suspend an advertisement or disclosure document for up to 14 days or make an order prohibiting the disclosure document or advertisement where the adviser or broker is given at least seven days notice and an opportunity to be heard.

The $30,000 fine for non-compliance would also apply to this provision.

The commission will impose the suspension when it is satisfied that an adviser or broker has:

i) contravened either the investment adviser disclosure requirements or a term of an investment adviser disclosure exemption; or

ii) been convicted of an offence under the Act; or

iii) contravened overseas regulations relating to the provision of investment advice or broker services.

"I recommend that the suspension power be limited to a period of 14 days. 24 hours notice of the prohibition should be given, along with the opportunity for the adviser or broker to make a submission, unless the commission considers that it is desirable in the public interest for an order to be made more urgently," Dalziel says.

In terms of disclosure advisers will have to tell members of the public whether they are a member of a professional body, what dispute resolution facilities are available to clients, the nature and level of the fee charged for the service and the date that the disclosure statement was prepared.

Dalziel says disclosure documents will have to have a statement about whether professional indemnity insurance is maintained and the nature and scope of that insurance.

"This will provide members of the public with a level of assurance as to whether the adviser/broker would be able to pay out if they had a civil action brought against them."

Also they will have to disclose any successful court or disciplinary action taken against the adviser by the commission or any professional body.

"This is important information for members of the public because it will help them assess the level of trust they can place in an adviser."

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