Advice checklist

You can get investment advice from financial planners, insurance companies, sharebrokers, banks, asset managers and independent advisers. Some lawyers and accountants give investment advice.

There are no guarantees of good financial advice. You may like to shop around until you find an adviser you feel confident with. The adviser should understand your financial situation and your investment goals and recommend investments that suit you.

What an adviser must tell you

When you go to any of these advisers they must give you a written 'disclosure statement' before they give you any advice and before you pay them any money. The information in the disclosure statement will help you decide whether or not to take their advice.

The adviser must give you their disclosure statement before they give you any advice. They should give it to you without you having to ask for it. The adviser can hand it to you, or post, fax or email it to you. It is not good enough to refer you to a website to see it. It must show the date it was prepared and give the adviser’s contact details.

The disclosure statement must not deceive, mislead or confuse you, and it must be kept up-to-date.

What's in the disclosure statement

By law, the information in the disclosure statement must answer each of the following six questions about the adviser:

What are their experience and qualifications?
Do they have any criminal convictions?
What types of investment do they advise on?
What fees do they charge?
What interests do they have that could influence their advice?
What relationships do they have that could influence their advice?

And, if they are a sharebroker, do they have any criminal convictions and what are their procedures for dealing with your money?

1. What are their experience and qualifications?

The disclosure statement must state:

The adviser’s qualifications, when they got them, and how they keep them up-to-date.
How long they have been giving advice, and who they have been associated with or worked for during that time.
Whether the adviser has:
- professional indemnity insurance
- dispute resolution facilities for their clients.
Whether they belong to a professional body e.g. the New Zealand Stock Exchange, the Institute of Financial Advisers, or the New Zealand Institute of Chartered Accountants. Membership is no guarantee of good advice, but an adviser has to qualify to join and then conform to a code of conduct. Also you can complain to the professional body if you are dissatisfied.

2. Do they have any criminal convictions?

The adviser must say whether in the past five years they have:

Had any convictions for fraud.
Worked for a firm that has been convicted of fraud.
Been made bankrupt.
Been banned from managing a company.
Been expelled or barred from a professional body.

3. What types of investments do they advise on?

The range of investments an adviser gives advice on must be explained. For example, if they only advise about life insurance policies (and not about shares, superannuation or other investments) the disclosure statement must say so.

Some advisers give advice only on investment products offered by particular companies or funds. If so, the disclosure statement must state this and give the name of the product providers they are associated with.

4. What fees do they charge?

An adviser must explain the fees and costs you have to pay if you take their advice.

For example, the disclosure statement should state:

The hourly rate if an adviser charges by the hour.
The formula for calculating the fee if the adviser’s charge is based on the amount of money you invest.
Any costs you will have to pay e.g. brokerage.
When any fees must be paid.

If the adviser will deduct fees from money they are holding for you, they must explain this in the disclosure statement.

5. What interests do they have?

An adviser must tell you about any interests they have that could influence the advice they give you.

This includes the amount they will get paid and who pays it, e.g.:

Commissions from the investment product provider.
Bonuses, incentives and profit-sharing arrangements
'Soft commissions' like overseas trips, goods or sponsorships.
Loyalty-based support services, e.g. software and technology services.

An adviser must disclose payments made:

Directly to them.
To a company or trust in which they have an interest.
To a member of their family.
An adviser’s fixed salary or wages do not have to be disclosed.

Sometimes the exact amount an adviser will get paid depends on things like the amount you invest and other investments you make. If the adviser does not know the exact amount they must tell you the range they will be paid e.g. a commission of between 2 and 3 per cent.

6. What relationships do they have?

An adviser must tell you if they have a personal or financial relationship with:

Another person connected with the investment.
Any other person who may influence the advice they give you.

The adviser must also explain any business relationships they have with investment product providers whose products they recommend to you.

If the adviser has no relationships or payments likely to influence the advice they give you, the disclosure statement should say that.

Read the disclosure statement carefully

Deciding where to put your money isn’t something you should rush into. The disclosure statement should give you a clear picture of what the adviser can do for you, who they are associated with, what you will pay, and what choices of investment you have.
Shop around and compare the disclosure of several advisers. You may find you need more than one adviser to get the results you want.

Sharebrokers

If you go to a sharebroker they must give you a disclosure statement which explains whether in the past five years they have:

Been convicted for fraud
Worked for a firm that has been convicted of fraud
Been made bankrupt
Been banned from managing a company
Been expelled or barred from a professional body.

If the broker works for a broking firm they must say if any of these things have happened to a principal officer of the firm.

They must also say if the firm has been placed in statutory management or receivership.

What are their procedures for dealing with your money?

The broker must explain how they will handle your money. They should tell you if they have a trust account for this. Some brokers (sharemarket participants, lawyers and accountants) are required by law to have trust accounts.

The broker must explain:

How you will pay money to them, e.g. by cheque, electronic transfer or cash.
Whether or not they will hold your money on trust.
What records the broker will keep about your money.
Whether you can access those records, and if so, how.
Whether or not the broker’s handling of investment money will be audited.
If they are audited, the name of the auditor.
How (if at all) the broker can use your money for someone else’s benefit, e.g. if the money is not held on trust, can the broker use it to pay expenses.