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New Investment Adviser and Broker Disclosure Rules

28 February 2008

The new mandatory investment adviser and broker disclosure regime comes into force on 29 February 2008.

Chapman Tripp partner, Tim Williams says that under the new regime, advisers and brokers must give a “disclosure statement” to each client who is a member of the public – usually before they provide investment advice or accept money or property from the client. This is a significant change from the current two stage (initial and on request) disclosure regime and will affect advisers’ and brokers’ everyday operations.
Tim Williams says the changes are a desirable and timely addition to New Zealand’s investor protection laws. "However, as is common, the devil is in the detail. Some of the required disclosures are cast too widely. For example, an adviser needs to disclose any financial or other relationship with anyone connected with a recommended investment. This is very broad. For some reason, the general requirement that the relationship be one that is likely to influence the advice has been omitted in this case. Judgement is therefore called for when preparing these disclosures."
Mr Williams says another illustration of where the balance is skewed is on an interpretation favoured by the Securities Commission, where advisers need to disclose only when they have qualifications, PI insurance or dispute resolution facilities. "Surely it is more important to be told when the adviser is unqualified, uninsured and has no dispute resolution facilities than when they qualified, insured and deal with disputes appropriately."
He suggests that some of the required disclosures are also likely to be impracticably long to read over the phone when giving telephone advice not covered by a prior written disclosure. "It may have been better to require reference to a website or allow the investor to waive reading of the entire disclosure statement in these cases.”
“It is important to bear in mind however, that these are points of detail. There is a defence where breaches are immaterial and exemptions can be obtained for technical or unjustified difficulties. Overall the legislation obtains a pass mark”.
Please click here for Chapman Tripp's newsletter summarising the key points of the new disclosure regime.

For more information, contact our Web Editorwebeditor@chapmantripp.com+64 9 357 9622

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