I began writing about personal finance during my OE in Britain. There, investor protection was generally good and there were organisations to complain to that could champion your case.
A few months after returning to New Zealand I remember putting the phone down after an interview and saying out loud to myself, "this is the Wild West".
People were hanging out their shingles and selling all kinds of dodgy products with little comeback for the buyer.
There was no one to take up individual cases. The Commerce Commission, thanks to funding that had to be rationed, acted only where there was a big issue at stake or it saw the need for a test case.
Fast forward 10 years from my wild-west moment to the lessons learned from the global financial crisis (GFC), the finance company failures and other disasters such as the collapse of Blue Chip Financial Services. Finally, multiple reforms are going some way to protecting investors' money. The latest — the Financial Markets Conduct Act — started coming into force this week.
I've dubbed this "once in a generation" financial legislation the "Wild West Act" because it aims to clean up some of the dodgier aspects of our financial system.
There are five key changes that will affect investors for the better — hopefully. They are:
• Requirement for clearer information for investors with better product disclosure statements
• New standards for fair conduct — designed to make it harder to be misleading or deceptive
• More licensing of service providers such as trustees and the threat of putting them out of business if they don't shape up
• Better accountability and
• New ways to invest in smaller and start-up companies.
The big one in terms of consumer protection is the first. Until now disclosure statements could be so wordy they looked like small telephone directories. Even if investors could read them, the authors used clever language to disguise reality.
From now on disclosure documents will need to comply with a template and be written in a readable way enabling investors to make meaningful judgments.
Sue Brown, head of strategy, innovation and engagement at the Financial Markets Authority (FMA), pointed out something that has worried me for years. That is that companies used disclosure statements in the past as a means of marketing, rather than laying out the risks for investors so they can really understand the offer.
"Disclosure has been used by the issuer to sell the product or to control their legal liability [in the past]. We want disclosure to be the information investors need to make a sound investment choice."
She points out that the Genesis Energy disclosure statement is far better in this sense than Mighty River Power was and documents will continue to improve - meaning they become more readable.
The FMA won't check documents to make sure the truth is being told. It takes a risk-based approach, which means it acts when it receives intelligence that there is a breach rather than checking offer documents as a matter of course.
It will be up to trustees — now called supervisors — to check those documents. Trustees have been given a kick in the pants since they failed to carry out their duty sufficiently well with finance companies.
Supervisors — only some of whom were regulated in the past — will now face tougher rules to ensure they're competent. If they're not, as was the case with the finance companies, they risk losing their licence, says Brown.
Other financial service providers will also be required to follow fair conduct requirements and the FMA will be able to take civil or in some cases criminal action against them if they don't.
That means providers' conduct cannot be misleading or deceptive. They must not make any "false, misleading or unsubstantiated representations or dealings", says Brown.
The Financial Markets Conduct Act is one of several improvements for investors in recent years.
Previously there was no independent body to complain to for many problems encountered with financial advisers, fund managers and related professions.
These providers must now belong to an independent dispute resolution service such as Financial Services Complaints Limited or the Insurance & Savings Ombudsman, which can hear individual cases. This is important for investors' confidence.
One area that falls through the cracks of the legislation is property sales. Blue Chip might have failed but others survive and provide "investment plans" to clients showing that they'll make a killing by buying whatever property the company happens to be flogging.
Although most won't be regulated and will not have to meet the high standards of financial advisers, the FMA will have the power to "designate" a product that "looks and smells like a duck" — in the words of the former head of the FMA — into the act. This, however, is likely to happen only in extreme cases.
The Financial Markets Conduct Act won't and can't solve all the ills of New Zealand's financial services sector. There are risks in any investment and rogues are drawn to industries where large sums of money are entrusted to others. David Ross of Ross Asset Management is a recent example.
It's also natural for businesses to push the envelope legally where they can. The classic example of that was ANZ subsidiary ING. Before the financial crisis the company misrepresented the degree of risk in two funds it was selling to often older and conservative investors, who believed they were akin to a bank deposit. The funds failed and ANZ and ING tried — unsuccessfully — to put the losses down to bad luck for investors.
A lot has been said in the media in recent weeks about how the act allows peer-to-peer lending and crowd funding. The news has concentrated on the benefits to small businesses. It will also give ordinary investors a way to take a punt on small companies with high growth (or failure) potential.
How it works is that a company uses an online platform such as PledgeMe to raise a certain amount of money from investors. The company may offer shares for a certain sum of money (crowd funding) or a percentage interest on a loan (peer-to-peer lending). Private investors can expect a higher return on their investment, thanks to the higher risk involved.
They can also feel that they are playing their part in a business start-up.
There are a couple of other pieces of "once in 20 years" legislation going through Parliament that will help the downtrodden investing public.
One of them is a revision of the Credit Contracts and Consumer Finance Act.
The Consumer Law Reform Bill introduces the principle of responsible lending, which will help people who have been lent to despite having no hope of paying the money back. It will also make changes to the law governing the repossession of consumer goods.
The bill makes changes to a number of laws including the Fair Trading Act, Consumer Guarantees Act, Secondhand Dealers and Pawnbrokers Act and others.
One of the many changes will be that goods sold at auction on Trade Me and elsewhere, and those sold by tender, will come under the Consumer Guarantees Act. That means if you're sold a lemon of a car or anything else by tender or auction, you have the same protection you would have if you'd made an offer and bought it the traditional way.
Also the Non-bank Deposit Takers Act 2013 comes into force next month. It requires all finance companies, building societies and credit unions to be registered. It gives the Reserve Bank powers to detect and intervene should one of these companies get in trouble or fail.
And since the start of the month the FMA is the primary regulator dealing with complaints about financial services providers rather than the Commerce Commission. It is bracing itself to field more complaints. Its Investor Helpline number is 0800 434 566 or investors can use the contact form at fma.govt.nz.