Caroline Ritchie: Form filling paves way for big change

Rules - the bane of every schoolgirl.
Regulations - the bane of the modern investor. Well that's what you might be thinking if you are an investment advisory client.
Regulations mean more forms, and forms that need to be filled in and returned seem to send some people into paroxysms of shock and confusion. The forms, though, are coming, and so are the regulations which prompted their printing. It will be a whole new investment world out there after July 1 and the forms, and you filling them in, are your ticket to joining it.
As of that date the Financial Services Act 2008 will come into full force. This is the first big change to the way investment advisory services will operate in New Zealand post the GFC and is a natural and welcome step up.
It is designed to place proper and enforceable responsibility on the shoulders of those who make investment decisions on behalf of others. It is designed to avoid the horrors of whole-portfolio exposure to failed finance companies. It is designed to strenuously test the soundness, suitability and qualifications of those who manage client assets.
Most of all it is designed to protect you, the reader, and your money.
Among the accounting and legal professions, the new legislation will gently change the way many portfolios are managed in the background by the family accountant. Legal and accountancy figures are often trustees on their clients' investment portfolios, and have effectively "run" these in the background for some years.
Many intelligent and seasoned accountants with experience in the markets have indeed overseen and directed the successful and prudent growth of their clients' investments over time. Some have not been so lucky and some have been downright negligent.
In the extreme case, there was that chap who literally spent all his clients' funds and is now having a whale of a time in Hawke's Bay Regional Prison. Apart from our local jailbait ex-accountant, who was dealt with by the SFO, there was in the past no real recourse for clients who had been advised by trustees who had been negligent or inattentive in their monitoring of a client's portfolio.
The incoming rules land a new level of responsibility on those making asset allocation decisions for other people. Pre-emptively, many busy non-investment professionals are seeking the immediate transference of these accounts to experienced investment advisers who manage portfolios as a business. The bar of accountability has been raised with these new rules and it is excellent news for Kiwi investors.
The part-timers and the unqualified stand a far less chance of getting themselves involved with your money than ever before.
While all of the above might not motivate you to fill in your form and lick a few stamps, the next bit might. Without getting your completed form back, and updating details about you and your financial status, your adviser may not be able to give you specific and personalised advice after the 1st July. Which would be a pity.
Apart from a few bits of parchment to fill in, this is the best thing that's happened to our markets in a long time. Hats off to the lawmakers - it's a change that could not have come too soon.
Caroline Ritchie is an NZX adviser for Forsyth Barr in Napier and holds an NZX Diploma, BCom and BSc. For sharemarket advice, contact her on (06) 835 3111 or caroline.ritchie@forbar.co.nz.
The comments in this note are for general information purposes only. This article is not intended to constitute investment advice under the Securities Markets Act 1988. If you wish to receive specific investment advice, contact your investment adviser.