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Regulation of Investment Advisers

Regulation of Investment Advisers. NZSOA 2002 Conference Paper by Brian Lenehan Personal Views Only. Why I wrote this paper ?. Topical subject - recent Securities Commission review, FSRA in Australia and UK actuarial profession report Little non-government research on this topic

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Regulation of Investment Advisers

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  1. Regulation of Investment Advisers NZSOA 2002 Conference Paper by Brian Lenehan Personal Views Only

  2. Why I wrote this paper ? • Topical subject - recent Securities Commission review, FSRA in Australia and UK actuarial profession report • Little non-government research on this topic • My view is actuaries are possibly complacent re their responsibilities in this area

  3. Why is investment advice important ? • Assist individuals in managing their affairs • Success of free market economy • Plethora of investment options • Alleged unsophisticated consumers

  4. What is investment advice ? • My view is a wide definition is the best option • NZ legalisation defines as a “recommendation, opinion or guidance in relation to buying or selling securities”. The definition of securities is very wide and includes superannuation and other investments.

  5. Involvement of actuaries • Many give no advice • Incidental advice common, e.g. for superannuation schemes • Wholesale work could be advice • Actuaries should be aware of PI implications • Setting future expected rates of return

  6. Current regulatory environment ? • Relatively weak in NZ • Some moves for tightening • No registration or minimum standards in NZ • Registration common offshore

  7. For more regulation • Current open slather position re min. standards • Less fraud / poor advice • IOSCO standards • Investor protection • Better market efficiencies

  8. Against more regulation • Control by state impedes on personal freedom • Extra costs will be borne by consumer • Poor advice may happen anyway • Moral hazard • Compulsory Registration may create lazy monopolies

  9. Options for NZ • Status Quo - likely in short term • Minor Changes - likely in medium term • Tight regulation - seems unlikely unless there is a major scandal.

  10. Implications for actuaries • Often give investment advice without realising • Professional standards in investment area are light - eg no standards on rate of return estimates for defined contribution super • PI cover implications • As a professional body we should strive to act in the public interest

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