What should I expect from an investment adviser?

Investment advisers are people who give advice about investing as part of their job.

In New Zealand anyone can be an investment adviser. They don't need any special qualification and don't need to be licensed (except sharebrokers who are licensed by the District Court).

However, an adviser is required to disclosure certain information to you. From 29 February 2008 an adviser or broker must give you a Disclosure Statement before they give you advice and before you pay them any money. You should not have to ask for it.

The Disclosure Statement must tell you the adviser's:

• experience and qualifications;
• criminal convictions;
• the nature and level of fees they charge;
• other interests and relationships (including all remuneration); and
• types of securities the adviser gives advice on.

Investment brokers must tell you if they have any criminal convictions and explain the procedures they have in place for dealing with investment money.

Disclosure Statements must be kept up-to-date and must not be deceptive, misleading or confusing.

Is the adviser independent?
Not all investment advisers are independent of the issuers who offer investments. Some advisers only offer investments that they are paid to sell, and may not suggest other investments that could suit your needs.

The Adviser's Disclosure Statement should tell you what range of products he or she offers, and what commissions or other rewards the adviser may be paid for investments you make.

What an adviser should do
You should expect an investment adviser to be able to help you to make smart investment decisions. This means the adviser should:

• thoroughly understand the investments they offer;
• understand your financial circumstances and your investment goals;
• recommend only investments that suit your needs and situation;
• tell you if they don't offer all the investments that would suit you (eg, recommend a sharebroker if it would suit your risk profile to invest directly in shares and the adviser does not offer this service);
• tell you if other options might be better for you at this time, such as paying off a mortgage;
• explain the risks of an investment, as well as the possible rewards;
• explain how you can manage risk by choosing a range of investments;
• explain the investments to you and answer your questions in plain English;
• tell you the remuneration they will get if you buy a particular product;
• explain their fee and/or commission structure; and
• give you time to decide on an investment.

An adviser should not:

• make you feel embarrassed to ask questions in case you look foolish or naïve;
• make you feel out of your depth so that you give up trying to understand, and rely unquestioningly on their advice; or
• encourage you to move money from one investment to another, just so they can earn new commissions.

A good investment adviser needs to know quite a bit about you to do their job properly.

At your first meeting, an adviser should ask you questions about your situation, income, debts and responsibilities, savings, financial goals, and so on. You need to be prepared with this information when you go to the first appointment.

The aim is for the adviser to get the information needed to draw up an investment plan that meets your goals and fits your financial circumstances. Then the adviser can recommend investments that are right for you.

Adviser associations
Some advisers belong to professional associations that require them to have certain qualifications. Members must also abide by their association's ethical standards. You may like to ask whether an adviser belongs to an association and what the association requires of them, and take this into account when choosing an adviser.