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Your Investment Decision
If you are a private investor, (whether a small saver or a large investor), new laws give you the right to important information, which could affect your savings or investment decision.
These laws are designed to help "prudent, non-expert" investors to obtain simplified information about potential investments, and about your investment adviser.
This information outlines the key items of information you are entitled to have. You should ask for the information regularly and routinely use it when making your investment decisions. If you are unsure about any aspects of a proposed savings plan or investment, keep asking questions or seek a second opinion. If it is an important issue, make sure the questions and answers are in writing.
If you are visiting your investment adviser, it may help you to take the following information.
Investment statements
One source of information about an investment product is a document called an Investment Statement. This must be given to you before you invest any money. It should contain the following key information about the investment:
- What sort of investment is this?
- Who is involved in providing it to me?
- How much do I pay?
- What are the charges?
- What returns will I get?
- What are my risks?
- Can the investment be altered?
- How do I cash in my investment?
- Who do I contact with inquiries about my investment?
- Is there anyone to whom I can complain if I have problems with the investment?
When you are given an Investment Statement, read it carefully, and ask your adviser for an explanation of any part you don't understand.
There is also a "prospectus" for the investment, which provides more detailed information. You can ask for a copy of this, or ask an investment adviser to explain the main points included in the prospectus, which have not been covered in the Investment Statement.
Investment advisers
Investment advisers are now required to give you certain information up front, and to provide other information when you ask. The following two sections spell out exactly what information advisers must give you, and the questions you should ask.
A. What your investment adviser must tell you about themselves:
Before they give you any investment advice, and before you give them any money, investment advisers must tell you if (in the past five years) they have:
- convictions involving dishonesty;
- been made bankrupt;
- been prohibited from taking part in the management of a company or business.
Before they give you any investment advice, and before you give them any money, investment advisers must now tell you all about the procedures for receiving and distributing your investment money, including:
- how payments (fees and investment money) will be made to the adviser;
- whether the money will be held in trust by the adviser;
- what records are kept, whether you will have access to those records, and under what terms;
- whether the adviser's accounts will be audited, and if so, by whom;
- whether your money can be used by the adviser, either for the adviser's own benefit, or for the benefit of any other person.
In addition to the information laid out in section (a), investment advisers must provide other information on request. But you need to know what to ask.
If you ask any of the following questions, the adviser is required by law to respond in writing within five working days.
The answers to these questions will help you judge the expertise of the adviser and whether or not the advice you get will be independent.
- What organisations do they have a relationship with, and what is the nature of that relationship?
- What types of securities do they give advice about, and are there any restrictions relating to this? If they only give advice regarding certain products, what are they?
- What are their qualifications, relevant to the giving of investment advice? When did they gain those qualifications, and to what extent have they kept up to date in that field?
- What experience do they have as an investment adviser?
- Do they, or does anyone associated with them, have a financial interest in giving you this advice? If so, what is that interest? (This relates to any interest that is reasonably likely to influence the adviser in giving the advice).
- Will they receive any money from anyone other than yourself, in connection with the advice they are giving you? (This includes any commission or fee that is paid by anyone other than you, the investor).
- What does the term "investment adviser" mean?
Securities include shares, debentures, investment linked life insurance policies, and interests in unit trusts, group investment funds and superannuation schemes.
The above investment advice has been prepared jointly by the:
Securities Commission
The Office of the Retirement Commissioner, and the
Ministry of Consumer Affairs.
Note: The new law also covers people who merely receive money or securities from an investor and do not offer any advice. These people are referred to as "investment brokers."
They are subject to the obligations in section (a) above, but not those in section (b).
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