The wreck of Ross Asset Management (RAM) has highlighted some of the important differences between fully-regulated funds management products and other nebulous services operating on the legislative border.
As myself, Brian Gaynor and others have pointed out RAM head, David Ross, was able to get away with it because the rules allow investors to sign away some important legal protections if they are so inclined.
The PwC report confirmed my earlier guess that Ross was in fact running a discretionary investment management service (DIMS), where clients grant the operator authority to invest money on their behalf.
Usually DIMS operators - who are often stockbrokers - pool client money into similar portfolios to gain economies of scale but there is no formal legal fund structure.
Also unlike regulated financial products, it's just about impossible to know how much money invested in New Zealand under DIMS arrangements.
However, according to some of the industry people I've spoken to, there's probably a considerable amount of money managed in the DIMS way.
One funds manager described DIMS as a "soft underbelly" in need of intense regulatory exercise.
Most DIMS operators are probably not quasi-Ponzi schemes but how do you know?
The upcoming Financial Markets Conduct Bill (FMC) actually devotes a fair amount of attention to DIMS, setting out new licensing rules that would bring them more into line with other regulated investment products.
The Commerce Committee considering the FMC Bill recommended "amendments to clarify the boundary between the DIMS covered by the bill and those that fall under the Financial Advisers Act 2008, and make it less subject to arbitrage".
"... We recommend amendments to ensure that the additional requirements for disclosure, client agreements, and for duties of DIMS licensees and custodians under subparts 4 to 6 of Part 6 apply also in respect of the retail service," the Commerce Committee report says.
But the Commerce Committee also called for a more defined carve-out from the DIMS licensing regime for those providing such services to wholesale clients - a loophole that, if the FMC was in force, RAM may even have been able to slip through.
Following the RAM case NZ legislators and regulators may be inspecting this sometimes-fuzzy distinction between wholesale and retail investors.
If so it would have the example of the UK regulator, the Financial Services Authority (FSA), to draw on.
As this Daily Telegraph story reports:
"In the past the FSA has left alone investment banks and large investors, reckoning that they are capable of protecting their own interests, but the latest comments are likely to cause fears in the City of more intrusive oversight from regulators..."