Recent court cases highlight risk of informal arrangements.
Friends and family are a common source of financial advice for many New Zealanders but recent court cases have shown trusting your money to someone you met at the golf club might not be the best idea.
Last week former financial adviser Jacqui Bradley was found guilty of 75 fraud-related charges linked to 28 investors who lost $15.5 million through her business B'On Financial Services.
Many of the 28 were friends and family including one women who met Bradley through their daughters attending school together.
In another case Evan Paul Cherry pleaded guilty to four charges relating to the misapplication of investor funds and false statements in investor reports.
The Serious Fraud Office alleged the $5 million fraud involved funds being invested contrary to investment instructions.
SFO chief executive Adam Feeley said the case illustrated the importance of looking beyond personal connections and carefully assessing the risk of investments.
"The high level of trust associated with personal relationships reduces any questioning by the investor when presented with a change in the underlying nature of the investment. It can be a dangerous arrangement that clouds judgment," he said.
Sue Brown, head of primary regulatory operations at the Financial Markets Authority said investment advice from friends and family was an area of concern for the investment regulator.
"We know people need to talk about these decisions.
"But if you are considering investing your money by giving it to a friend don't let it derail the normal checks and balances."
Brown said people needed to consider if the friend was qualified to offer the advice.
Being approached by a friend to invest also did not exempt them from providing certain information under the Securities Act.
"Just because you know them, doesn't mean they are someone you should give your money to without being given the information they are required to under the law."
She said New Zealanders tended to be shy about asking questions. But asking questions should not faze a professional.
"You wouldn't buy a house or a car off a friend without getting it checked out. Why would you give an equivalent amount of money to a friend to invest without checking it out?"
Brown said the new financial adviser regime had also changed since the Bradley fraud took place.
All financial advisers have to be registered and those who give specialist personalised advice have to be authorised, holding qualifications and meeting conduct guidelines.
Don't get caught out
* Ask if they are qualified to give the advice.
* Question if you are investing because they are a friend or because it's a good investment.
* Don't be rushed into making a decision.
* Be wary of anything that seems too good to be true.