Over the past 6 months, eighteen finance companies have either failed completely or run into trouble. So it should be comforting to know that the Government has indicated a willingness to legislate to protect the public by passing into law the Securities Markets (Investment Advisers and Brokers) Regulations 2007 (the “Regulations”). The Regulations supplement and update the Securities Markets Amendment Act 2006. Commencement Order SR 2007/367 provided for the Amendment Act to come into force on 29 February 2008, the same day as the Regulations. They are now either contained in or read together with the Securities Markets Act 1988 (“the Act”). Intention of the changes The intention of the amendments and regulations is to oblige Investment Advisers and Brokers to make certain disclosures to clients in a prescribed manner before giving investment advice or providing services as an Investment Adviser or Broker. What must be disclosed? An Investment Adviser must disclose in writing, in the manner prescribed, the following: experience and qualifications criminal convictions and adverse findings in any Court on their professional role the nature and level of any fees charged details of remuneration or awards they received or will receive from anyone else other interests and relationships that could affect the advice types of securities they advise on It is important to note that clients do not have to ask for this information; it must be provided up-front. Who is an Investment Adviser or Broker? An Investment Adviser gives recommendations, opinions or guidance relating to investment in securities to members of the public in the course of the adviser‟s business or employment. Certain information will not constitute advice, such as opinions published in the media, assistance with acquiring and disposing of securities, and offer documents including a registered prospectus and authorised advertisements. An Investment Broker receives investment money or property from members of the public in the ordinary course of their business. Therefore, the definition of an Investment Adviser or Broker can include share brokers, financial planners, accountants, lawyers and others that give investment advice to the public. One point that will be of real interest is the requirement for Investment Advisers and Brokers to disclose their commission structure and the amounts before advice is given. That includes all remuneration whether direct or indirect, that the Adviser or Broker may receive following the giving of advice. Criticisms The regulations have been criticised for not going far enough as Advisers and Brokers are not required to give advice about the nature and quality of the investment and the client is not required to sign any agreement or receive any warning about associated risks. Furthermore, the regulations do not provide for a declaration of any conflict of interest and a consequent prohibition if a conflict does arise. It has been suggested that a client agreement should be introduced that clearly sets out the risk associated with the investment being considered. It has also been argued that because a person‟s life savings may be at stake, the Government should consider passing more comprehensive laws requiring Advisers to fully apprise unsuspecting investors of the risks being taken and make it part of the Investment Adviser‟s job to assess the client‟s situation and make a recommendation based on that. Legislation aimed at ensuring that the risk is understood could be the next step. Remedies An Investment Adviser or Broker who fails to disclose in accordance with the Act commits an offence, and may be liable for a maximum fine of $100,000 for an individual and $300,000 for a body corporate. However, the Investment Adviser or Broker has a potential defence if he or she believed on reasonable grounds that the disclosure given was not deceptive, misleading, or confusing. It is hoped that these changes go some way towards increasing transparency and reducing the types of losses we have seen recently.