8.2 Investment Disclosure Act 1996

In 1996 New Zealand passed a law specifically tergeted at investment advisers. It is called the 'Investment Advisers (Disclosure) Act 1996'. Since 1985 the New Zealand government has been a close follower of the 'Chicago consensus' approach to government. This phrase is shorthand for a series of macroeconomic policies, such as floating exchange rates, which are designed to pass market signals directly to the consumer. Market participants who have more transparent access to information should, in theory, be able to make more informed choices.

This piece of legislation does not provide for any minimum qualifications or standards for investment advisers. This means that anyone in New Zealand wishing to claim to be a financial planner or investment adviser may do so, regardless of their level of training or expertise. Therefore Caveat emptor, let the buyer beware, is therefore good advice when paying for investment advice in New Zealand.

Currently investment advisers must disclose certain information, known as "initial" disclosure, before giving investment advice. Information about an investment adviser's qualifications and experience, pecuniary interest in giving the advice, relationships with relevant organisations and the types of securities about which advice is given need only be disclosed upon request.

Many people do not know that they may ask for this information. This could result in investors being unaware of this important information. This "request" is important information for any person deciding whether to take investment advice from an investment adviser and whether to act on it. The investor should know about it, and in advance.

As can be reasonably expected, many people in the industry wish for higher levels of disclosure. One particular issue stands out. Namely, the fact that the financial interest that the adviser may or may not have in a particular investment is not required to be disclosed unless requested. If there is one piece of advice which all who seek investment advice is New Zealand should heed, it is:

Do not forget to ASK for all legally required disclosure!