FMA has eye on managers

More than half of the country's 2000 authorised financial advisers are permitted to provide a discretionary investment management service. Photo / Mark Mitchell

Ross Asset collapse has highlighted the risks of controlling individuals' investments.

The investment watchdog says it is taking a vigilant approach to financial advisers who manage their clients' money on a discretionary basis since the Ross Asset Management collapse but can't rule out other cases of poor management.

More than half of the country's 2000 authorised financial advisers are permitted to provide a discretionary investment management service where they are supposed to provide day-to-day management of a client's investment portfolio and clearly identify the assets held for that person.

A spokesman for the Financial Markets Authority said people who invested with Ross Asset Management believed they were getting a discretionary service.

But so far receivers PwC have identified just $11.5 million of $449.6 million the Wellington financial adviser was believed to be controlling on behalf of 900 investors and do not expect to discover any more assets of consequence.

The FMA spokesman said around 1253 advisers were authorised to provide discretionary investment management services and it was confident most were behaving professionally and working to comply with new financial adviser laws. "On that basis, we believe the number of cases where assets are not being clearly identified and held for individual clients will be small but we will be vigilant for other similar cases.

"Even with the right regulatory regime, and a regulator with the right capability and attitude, there will still be times when people do the wrong thing."

New legislation governing discretionary investment management services is part of the Financial Markets Conduct Bill which is expected to be passed into law early next year.

The bill will make it compulsory for all those who offer a discretionary service to be licensed although authorised financial advisers who are already permitted to offer the service will be excluded from further licensing.

A spokesman for the Ministry of Business, Innovation and Employment said under the new law investor property must be held by a separate custodian from the discretionary service provider and must be independent unless the firm had an exemption.

Institute of Financial Advisers president Nigel Taite said although more than 1200 advisers were permitted to provide discretionary advice, most did not individually select investment assets but used managed funds.

Discretionary service

What is it?

A financial adviser undertakes day-to-day management of a client's investment portfolio, clearly identifying those held for individual clients, monitors all of each client's holdings and making investment decisions on the client's behalf.

Credentials

Questions to ask your financial adviser:
* What are your credentials?
* Do you run a trust account?
* Is it audited?
* Do you use an independent custodian?
* Do you buy and sell assets directly?