MED proposes exempting independent advice from securities law
The Ministry of Economic Development is seeking comment on whether it should exempt investment recommendations from independent financial advisers from securities law.
Thursday, June 24th 2010, 5:02AM 
8 Comments
by Paul McBeth
In its Review of Securities Law discussion document, the government department asks for submissions on whether independent financial advisers should be granted an exemption on their recommendations, and would be "responsible for judging whether the information and assurances provided by the issuer are adequate."
Though the ministry accepts "this has not been a safe approach due to failings in the financial adviser industry," new regulations carving out "truly independent" advisers did not work for or receive commissions and would be in a position to provide advice "without regard to their own interests."
As well as reducing compliance costs, the exemption would open offers to investors that they would not normally have access to and could improve disclosure standards, as financial advisers would demand more relevant information.
MED said it could also encourage the development of professional independent advisers, and help stoke demand among investors to seek advice and make better decisions.
The proposal is part of sweeping changes proposed for the Securities Act that will streamline financial products into four categories, and reduces the required compliance from sophisticated investors.
The discussion document also proposes changes to disclosure requirements, with the ministry pushing for issuers to provide one document to investors at the point of sale, containing only information considered "crucial" to an investor's decision. The document would direct investors to any additional information would be made in other documents. The point-of-sale document would replace a prospectus.
MED also prefers staggered risk assessment in the disclosure documents according to the type of security on offer.
Paul is a staff writer for Good Returns based in Wellington.
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Comments from our readers
Is the principle to "do what is best for your client, not yourself" really that hard to live up to?
Are accountants covered under the Act as well? A referred sole-trader was looking for income protection cover, he could afford it, but I asked him to check with his accountant if it is more suitable for him to have an indemnity or agreed value cover since he knows his financials better. Came the reply - he should defer cover for a few months. Question - can accountants give insurance advise and will they be liable if the prospect do become seriously ill within the next few months with no cover in place after taking their advice?
How about lawyers?
Also, recently I had an experience of a bank who insisted that the MD policy for my client's commercial building was not sufficient because there was no BI cover - for the record, the building was vacant. Are banks also covered under the Act?
Btw, my client cancelled the MD policy on their vacant commercial property took with me and have it insured via the bank.
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