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MED proposes exempting independent advice from securities law

The Ministry of Economic Development is seeking comment on whether it should exempt investment recommendations from independent financial advisers from securities law.

Thursday, June 24th 2010, 5:02AM 8 Comments

by Paul McBeth

In its Review of Securities Law discussion document, the government department asks for submissions on whether independent financial advisers should be granted an exemption on their recommendations, and would be "responsible for judging whether the information and assurances provided by the issuer are adequate."

Though the ministry accepts "this has not been a safe approach due to failings in the financial adviser industry," new regulations carving out "truly independent" advisers did not work for or receive commissions and would be in a position to provide advice "without regard to their own interests."

As well as reducing compliance costs, the exemption would open offers to investors that they would not normally have access to and could improve disclosure standards, as financial advisers would demand more relevant information.

MED said it could also encourage the development of professional independent advisers, and help stoke demand among investors to seek advice and make better decisions.

The proposal is part of sweeping changes proposed for the Securities Act that will streamline financial products into four categories, and reduces the required compliance from sophisticated investors.

The discussion document also proposes changes to disclosure requirements, with the ministry pushing for issuers to provide one document to investors at the point of sale, containing only information considered "crucial" to an investor's decision. The document would direct investors to any additional information would be made in other documents. The point-of-sale document would replace a prospectus.

MED also prefers staggered risk assessment in the disclosure documents according to the type of security on offer.

Paul is a staff writer for Good Returns based in Wellington.

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Comments from our readers

On 24 June 2010 at 10:45 am alan said:
Incredible! I thought it had been decided that there is no such thing as an "Independent" adviser.Isn't that why SIFA abandoned its full name?
On 24 June 2010 at 11:08 am brent sheather said:
there are independent advisors around,just not many of us !
On 24 June 2010 at 2:26 pm mac said:
So if an advisory company provides fee only investment advice, yet takes commisson for insurance recommendations (that are based purely on independent research) then the advisory company cannot classify itself as an independent advisory company! And please identify for me any commercial enterprise that opreates in the real world "without regard to their own interests.". What a load of....
On 24 June 2010 at 4:02 pm Kimble said:
There is a difference between "operating" without regard to their own interests and "providing advice" that does not have any regard to their own interests.

Is the principle to "do what is best for your client, not yourself" really that hard to live up to?
On 24 June 2010 at 6:56 pm Mat said:
I agree Kimble, there has been too much discussion as to what constitues independent advice from a regulatory point of view, when what really matters is that you can justify your independent advice to your clients. Consumer awareness is increasing anyway,so it won't be long before the truly independent advisors out there get the recognition they deserve for being objective and recommending the right product for the right client, regardless of how much commission they earn.
On 26 June 2010 at 1:47 pm Jason said:
Shouldn't we all be in the gun for the advice we provide?? If we are truly to be a profession, then we all should be placing money where our mouth is. And it shouldn't matter if the advice is provided from a fee for service or commission. As some of you have suggested, placing the client first is utmost and hence removing some from liability becaus the perception is that they meet the criteria of Independence, will not protect the customer. Custoerm first, how we get paid not relevant as long as we all are subjected to the same rules.
On 28 June 2010 at 2:20 pm w k said:
Advisors had been the target now, but what about the rest?
Are accountants covered under the Act as well? A referred sole-trader was looking for income protection cover, he could afford it, but I asked him to check with his accountant if it is more suitable for him to have an indemnity or agreed value cover since he knows his financials better. Came the reply - he should defer cover for a few months. Question - can accountants give insurance advise and will they be liable if the prospect do become seriously ill within the next few months with no cover in place after taking their advice?
How about lawyers?
Also, recently I had an experience of a bank who insisted that the MD policy for my client's commercial building was not sufficient because there was no BI cover - for the record, the building was vacant. Are banks also covered under the Act?
On 28 June 2010 at 2:24 pm w k said:
Re: earlier posting.
Btw, my client cancelled the MD policy on their vacant commercial property took with me and have it insured via the bank.
Commenting is closed

 

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China Construction Bank Special - - - -
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