Advice crucial for 'fringe' investments
The Financial Markets Authority is keeping a close eye on "fringe" investment products, and it says financial advisers have a key role to play in protecting investors.
Tuesday, March 13th 2012, 6:30AM 
4 Comments
by Niko Kloeten
FMA head of primary regulatory operations Sue Brown said the regulator had noticed a recent increase in promotion of investments that don't fall under the Securities Act or the Securities Markets Act, the main pieces of investment law it is responsible for.
"Some products might just fall outside what we can do and can't do. Some examples include gold bullion and other commodities and also racing syndicates and gambling schemes that try to beat the market."
Brown said the products promoted weren't necessarily dodgy but the FMA was concerned investors would wrongly think they were regulated by it.
"The risk is they're getting promoted as investments but they are not the types of investments we regulate, so they're not under our control," she said.
"That's not to say they are all risky but sometimes things go wrong. Our concern is that people might have a false sense of security about them."
Brown said the FMA would take what action it could in each situation, for example making sure people or companies offering finance are registered as financial service providers.
In other cases the FMA might issue clear warnings to the public about particular products, or refer cases to the SFO if fraud is suspected.
However, she said the best protection for the public is education, and good financial advice is crucial in ensuring potential investors understand these fringe products; advisers themselves must also pay close attention to make sure they understand them.
Brown said gold, which has been in the headlines recently with the collapse and subsequent SFO investigation into Bullion Buyer, is a particularly popular investment in the current economic climate.
"In times of financial stress people look to gold as something you can get hold of. People understand what gold is - it's easier to understand than a debt security or a share or something."
She also noted that under the Financial Markets Conduct Bill, which recently had its first reading in Parliament, the FMA will have the power to "call in" investments that are seen to be structured to avoid its jurisdiction.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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using either loans or futures to gain the leverage then they will come under FMA jurisdiction?
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Why do advisers’ have a “key role” in protecting investors? We can only help the ones who talk to us; the FMA has a key role to play in educating consumers that they should be talking to us, and avoiding such investments in the first place!
Speaking of public education, here is a Cabinet Paper from mid 2007. We are approaching 5 years since this was written, and plenty has been promised by the bureaucrats since, but all we have had is a brief, weak, ineffective and insulting “cowboys” campaign. The likes of Elijah Geldman are the real cowboys, and mystery shopping the good guys won’t save the public from them.
http://www.med.govt.nz/business/business-law/financial-advisers/cabinet-papers/New%20regulatory%20framework.pdf
s67 says:
“Introducing a new framework will not itself be sufficient to ensure that
the framework objectives are met. A key part of this work relies on
consumer education. Consumer education was supported by an
overwhelming number of submissions, provided that approved
professional bodies should not be solely responsible for this work, and
provided that this was not an express role for the approved
professional body. Further work is required on the best way for
government-led work on public education on financial advisers and
their role.”