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Commission cautions on disclosure changes

The Securities Commission has added a voice of caution to the current official discussion on new disclosure rules for financial advisers.

Tuesday, July 4th 2006, 6:39AM

by Rob Hosking

Wide-ranging regulation-making powers were added to the Securities Legislation Bill currently before Parliament earlier this year. Those powers included the ability for the government to make regulations about information disclosure and other rules affecting advisers without having to take them before Parliament.

The Securities Commission is warning against overkill with disclosure rules.

“There is a risk that in some cases disclosure would need to be either so voluminous or so generalised as to be of little use…We have seen some template disclosure documents prepared by a large firm that include remuneration disclosure running to over four pages…”

"That will not only impose high costs on advisers and providers: it will also not help the investor very much," the commission says.

It suggests that what should be disclosed – ahead of any advice being given – is “a statement of the nature of remuneration, fees, or charges, that will apply, including the amounts of any fees, etc, that are not dependent on the type of product that the client chooses.

“This should be followed by specific disclosure of any applicable remuneration relating to a particular investment before the client makes any decision to buy the product.”

Making the disclosure later is no good, the commission says, unless there is a cooling off period.

“However, a cooling off period may be difficult to achieve through regulations, as these are largely dependent on the product provider.”

The regulation making powers include the ability to require advisers to disclose their level of professional indemnity insurance.

The commission says requiring advisers to disclose the exact amount – which is one proposals – is likely to be unworkable, and that a requirement that advisers give an undertaking they have an adequate level of insurance – with penalties if this turns out to not be the case – is likely to be more workable.

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

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