Articles in this report: Reflections on New Zealand; Climate change - more than hot air; The viability of IP; Financial advisors under the spotlight; Duncan Cotterill on international stage (firm profile); Chris Heilbronn Kensington Swan

Financial advisors under the spotlight

A raft of legislation relating to the regime regulating financial advisors in New Zealand has been keeping firms on the hop. ALB takes a closer look

The New Zealand parliament has not been idle in recent months, with extensive legislative reforms designed to raise the bar for investment advisors. Some reforms have already passed into law, with others expected to be passed by mid-2008.

"The collapse of a number of consumer finance companies has really put the focus on investment advisors," says Sacha Judd, partner at Buddle Findlay.

"There was concern about a lack of transparency about the way advisors were being remunerated, and that they were telling the public that certain investments were suitable without disclosing relevant conflicts of interest. The changes have been in the pipeline for some time and the objective is to align us with best practice overseas," explains Judd.

Judd says the legislation currently being considered by parliament would represent a very significant change.

"There'll be a requirement for financial advisors to be registered where there was no such previous requirement," she says. "The new provisions have a very wide ambit and, if passed in their current form, will catch a lot of people who wouldn't have considered themselves to be financial advisors. However, the laws aren't really intended to be heavy handed - for example, they don't go as far as those in Australia in terms of licensing requirements. The point is really to identify who these people are and to put the focus on their experience and qualifications."

Disclosure requirements have been tightened too. "Under the new regime, advisors and brokers must give a disclosure statement to each client who is a member of the public - usually before they provide investment advice or accept money or property from the client. This is a significant change from the current two-stage (initial and on request) disclosure regime and will affect advisors' and brokers' everyday operations," says Chapman Tripp partner Tim Williams.

While welcoming the changes, Williams says the disclosure requirements are cast quite broadly: "For example, an advisor needs to disclose any financial or other relationship with anyone connected with a recommended investment," he says.

It is expected that there will be additional work for law firms as a result of the changes. "Law firms will see a lot more advisory work, for example helping clients with disclosure statements and working within the new framework," Judd says.

Erich Bachmann, managing partner of Hesketh Henry, agrees: "The changes have great potential to create more work for firms. They'll take a while to gain some steam from a legal perspective, they may take a while to generate work, [but] certainly the potential is there."

Insider trader rules have also been tightened, with the offence now criminalised. "The intended purpose is to improve public confidence in the market," says Judd.

"The net has been widened to cover any information not generally available to the public, regardless of whether the person who obtains the information has any connection with the company in question. Previously that connection had to be there, so there was a loophole for situations where information was, for example, stolen off someone's desk or taken out of the trash," he says.

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