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Law Reform: Investment Advisers
A Discussion Paper

CHAPTER 2 PUTTING INVESTMENT ADVICE IN CONTEXT

Investment Advice is Important

2.1

Investment advice can, over time, have a significant effect on the New Zealand economy. It can direct the flow of investment capital into areas of value and can help investors plan for the future and, in particular, for retirement. This is increasingly important for the community as the average age of the New Zealand population rises.

2.2

Products and services available in the financial markets are complex. It is not always easy to understand the nature of investments. The investment adviser is expected to act as a conduit between the issuer (the raiser of capital) and the investor, by explaining and commenting on the issuer's product. The investment adviser can assist to channel an investor's funds into investment products that best fit that investor's needs.

Regulation of Investment Advisers is Important

2.3

Effective regulation of the investment adviser industry is important. Regulation reflects the standards of acceptable conduct and if properly devised can foster compliance with these standards. Investment adviser regulation should aim to ensure that people are well informed and confident when dealing with investment advisers. It should not impose unnecessary costs on either the investment adviser or the client. In achieving these goals, regulation should provide incentives for the investment adviser to adhere to high professional standards and to give good advice. Regulation should aim to ensure that the investor is able to recognise advisers who meet these standards and, within reason, to rely on them. Consistent with this policy, regulation at present concentrates on effective rules for disclosure of relevant information by people who give investment advice to the public or receive money or property for investment from the public as intermediaries.

Regulation of Investment Advisers can be Improved

2.4	We consider that the present law can be improved by clearer and more complete rules about disclosure, stronger rules for dealing with matters such as fraud or conduct which is likely to deceive, mislead or confuse and more practical provisions for enforcement.
2.5	To assist our analysis we have divided our discussion of questions relating to regulation of investment advisers into three chapters. These relate to disclosure, advice on illegal offers of securities and enforcement. We consider these to be the three main areas where the law relating to investment advisers is in need of review. First, however, we consider the current law.