Commission outlines role of an adviser

The Securities Commission believes that a higher level of disclosure by advisers equates to greater investor understanding and confidence.

Commission chairman Jane Diplock told delegates at the recent annual Money Managers conference that, "a professional adviser discloses fully, regardless of the requirement under the present two-tier law, and that the risk/return equation is fully explained."

She says there is empirical evidence that shows countries with good, effective regulatory frameworks enjoy increased capital flows.

When asked what her view of adviser regulation was, she said she felt the industry in New Zealand was at a crossroads between self-regulation and government-imposed licencing.

Based on her observation of the industry, she felt the industry was fragmented.

Money Managers marketing manager Al Scott says that this suggests that as long as this situation continues the alternative is one of legislation.

She says that investment advisers have an obligation to ensure investors are comfortable with their investments by having a thorough understanding of the risks involved. This can be achieved by having high standards and operating with the utmost of integrity.

It is the view of the commission that no-one need wait for the law to change. The law at present should be seen as a baseline, as a minimum level of operating and that best practice should be applied, particularly international best practice in the area of ethics and integrity.

She cautioned that if adviser registration was the end result of the commission's work, there had to be the capacity to de-register wayward advisers to ensure credibility in the minds of the investing public.

Diplock went on to answer a self-posed question: What should an investor expect from their financial adviser?

• That the adviser is qualified to give the advice they're giving.
• That they know their job and they know the securities they're offering (the Securities Commission sees this as critical). That they are knowledgeable and they understand the risks involved as well as the rewards.
• That the advice is in the client's best interests.
• That they understand the legal framework for securities being offered.
• That they have an ability to recognise and identify a scam.

As to the future for investment advisers, Diplock said their role was to:

• Help people make wise financial decisions
• Contribute to the integrity of the securities market
• Refer dubious offers or possible scams to the Securities Commission or Registrar of Companies

Diplock says the commission received about 40 submissions to the Securities Markets and Institutions Bill. The main proposals supported by the submissions were:

• Mandatory disclosure with all information
• Recommending illegal offerings an offence
• Increased enforcement powers for the SC

If passed into law, this will give the commission greater power in both an investigatory capacity and the ability to enforce certain actions (such as the removal of securities for sale or the appointment of a compliance officer).

Investment advisers would likely operate under a continuous disclosure regime and insider trading laws would also be tightened.

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