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New adviser rules top of Parliament's to do list

Parliament resumes yesterday and at the top of the order paper is a bill which will impose large new disclosure burdens, and strict penalties for breaches of those burdens, onto financial advisers.

Wednesday, February 15th 2006, 4:59AM

by Rob Hosking

Parliament resumed yesterday and at the top of the order paper is a bill which will impose large new disclosure burdens, and strict penalties for breaches of those burdens, onto financial advisers.

The Securities Legislation Bill is the first bill to up of the 2006 session, as soon as the leaders’ have their ritual Parliamentary face pulling out of the way.

The bill is in two parts, and the highest profile part is targeting insider trading. However there are some important new rules for financial advisers in the second part – and, for the first time, criminal penalties for breaches of those rules.

The bill abolishes the current “two-tier” structure of disclosure in the Investment Advisers (Disclosure) Act 1996, which sets out information advisers are required to disclose to clients (tier one), and information they have to disclose if the client asks for it (tier two).

Essentially, the bill says advisers will have to comply with pretty much all the requirements in the second tier, whether or not the client asks for the information, plus some new ones.

A precise date the new law will take effect is yet to be decided, but it is likely to be by the end of this year.

As Good Returns reported in June, advisers will have to provide information about:

  • Fees they will charge
  • Other interests and relationships, including any remuneration
  • Any relationship with anyone “who may reasonably expected to influence the provision or content of the investment advice”
  • The nature and extent of that relationship
  • Any direct, indirect or pecuniary other interest
  • Professional qualifications
  • A brief description of their experience
  • Whether they are a member of a professional body
  • Whether they have professional indemnity insurance and the nature of that insurance
  • Whether dispute resolution services are available
  • Any relevant criminal convictions.

On top of that are new laws prohibiting advisers from recommending illegal offers or advertising in a misleading or deceptive way. The Securities Commission takes over enforcing the law.

The bill’s regulatory impact statement, which discusses the costs and burdens of complying with the law, raises occupational licensing as an alternative to amending the disclosure rules, but rules it out “at this stage… as detailed analysis of the costs and benefits of occupational licensing in the New Zealand context has not been carried out.

“This option may be looked at in more detail in the future.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« Rabobank offers managed funds onlineSovereign takes regulation bull by the horns »

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