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to the first edition of SuperNews for 2008.
ASFONZ 2008 Conference and Super Expo
Planning has already commenced to host our two day ASFONZ Conference and Super Expo at the SKYCITY Auckland Convention Centre.
Our Conference dates are Thursday 28 August and Friday 29 August 2008.
So, please put these date in your diary NOW.
In conjunction with the 2008 Conference & Super Expo we are intending to host the inaugural ASFONZ Golf Tournament at the Formosa Country Club on Wednesday 27 August 2008. Format will be ambrose in teams of four. More information to follow.
Investment Statements –Update to Important Information Content
Regulations passed under the Securities Markets Amendment Act 2006 will repeal the
Investment Advisers (Disclosure) Act 1996 with effect from 29 February 2008, replacing it
with new disclosure rules for investment advisers.
New law
The new law will require investment advisers to disclose certain information to all new
prospective clients before giving any actual investment advice.
The current law only requires investment advisers to disclose whether they have been
convicted of an offence under this Act, or a crime of dishonesty as defined in the Crimes
Act 1961, or have been pronounced bankrupt. All other information regarding matters such
as fees and the investment adviser’s qualifications and experience, is required only upon
request. The new investment advisers disclosure law changes this.
From 29 February 2008 the new law will require an investment adviser to provide upfront
disclosure before they give any investment advice. An investor will no longer need to
request a disclosure statement, as they should receive this as a right. Therefore, the
content of the Important Information section of the Investment Statements required under
the Securities Regulations will cease to reflect the law come 1 March.
The Securities Commission has proposed a draft statement to replace the existing content
relating to investment advisers and has sought submissions on revised content. One
option is to simplify the content to say:
Investors are entitled to receive a document from their investment adviser, and
that they should consider the information contained in this document carefully
before choosing their adviser.
While simplification is a nice idea, the majority of individuals do not know
what a disclosure document is supposed to tell them; therefore, detail is a necessary
component. If you remove the detail, you remove an opportunity for market policing of
adviser compliance (assuming anyone actually reads that section of this investment
statement).
Regrettably perhaps, a more detailed explanation of what investors should expect to
receive from their investment adviser seems necessary; otherwise, there is nothing to be
gained from the statement itself. There is a real risk that investment advisers who wish to
evade their obligations could simply produce a non-compliant disclosure statement, and the
investor would have no prompt to alert them to the deficiency.
The Regulation amendment is expected to be passed by the end of February.
Existing investment statements
In light of the changes that will need to be made to existing investment statements, the
Securities Commission has proposed that the changes will only apply to those investment
statements prepared after the amendment comes into force. Therefore, existing
investment statements can still be used once the changes are enacted. The point is not
regarded by the Securities Commission as material.
While the Securities Commission’s lenient view is a pleasing concession for the Industry,
issuers should bear in mind that this is only the Securities Commission’s viewpoint. It does
not overcome the fact that current important information content in investment statements
will not accurately reflect the law after 29 February 2008. Arguably, there is a duty of care
on issuers to ensure investors’ rights to disclosure from their investment advisers are not
misrepresented. In many cases the point will be academic, because with the pace of
change, a large number of investment statements will inevitably be replaced or updated in
the first half of the year.
KiwiSaver Compulsory Employer Contribution Rules
The Taxation (KiwiSaver) Act 2006 received Royal Assent on 19 December 2007. This Act
contained a number of amendments to the KiwiSaver Act, most of which we welcome as
being beneficial for both providers and savers. Perhaps one of the most contentious
changes has been the proposed roll out of compulsory employer contributions, and what it
means for existing employee remuneration arrangements.
Double-dipping
The rules introducing compulsory employer contributions have now been enacted in
subpart 3B of the KiwiSaver Act, with employer compulsion on track to commence 1 April
2008. The first draft of this subpart led to worries over “double-dipping” (that is, employers
contributing to both an employee’s existing superannuation scheme and a KiwiSaver
scheme). Whilst some of these concerns have been addressed in the final version of the provision in question (section 101D), the prospect of double-dipping and inequity between employees remains.
One particular concern is over the way the vesting arrangements for existing
superannuation scheme employer contributions will be taken into account.
In general, contributions employers make to a superannuation scheme on behalf of their
employees may be offset against compulsory KiwiSaver contributions if they meet the
definition of “other contributions.” One criterion of being an “other contribution” is that, for
the contributions scheme in question (i.e. the other non-KiwiSaver scheme to which the
employer contributes):
“Contributions vest completely in the employee in a period starting on or after
the employee first becomes a member of the contributions scheme and ending
no more than five years later.”
This wording does not seem to cover those employers with workplace schemes where the
vesting scale involved is over more than five years, even in circumstances where the
employer has contributed for the relevant member for more than five years, meaning
ongoing contributions are fully vested. The version of this section that has been passed in
the amending Act is much more palatable than the first version of the Bill released in May,
which required immediate vesting. However, the final wording still operates unfairly for
those employers contributing to schemes with vesting scales that exceed 5 years.
Other concerns in relation to the ability to offset “other contributions” remain, in particular the “sunset” rule that effectively prevents employers from offsetting contributions for employees joining the contributions scheme after 1 April 2008, except in limited circumstances.
What the new rules do is force employers to revisit the rules surrounding the way they will
contribute to an “other contributions” scheme to ensure they are not financially penalised
where an employee member joins a KiwiSaver Scheme – if indeed they don’t just decide to
close down ongoing contributions. Collective employment agreements aside, that option is
usually open to employers in respect of new employees –but may not be possible in
respect of existing employees. For employees who are already members of a scheme the
employer is contributing to, careful consideration of both the terms of the scheme and
relevant employment arrangements are required to determine just how much flexibility the
employer has to address issues.
The complications inherent in the way that compulsory employer contributions have been
rolled out are unfortunate, but at least the rules have now been finalised (at least, until the
next raft of changes, that is!). For those employers that have yet to come to grips with the
way compulsory employer contributions will impact on their employee remuneration
arrangements, time is fast running out.
It is now over four months since the implementation of the PIE regime on 1 October 2007.
The latest changes to the PIE tax rules were made in December in the form of the Taxation
(Business Taxation and Remedial Matters) Act 2007.
Most of the changes made by this Act to the PIE regime were remedial in nature. The
changes include new criteria to assist the Commissioner of Inland Revenue to make
determinations on the use of the Fair Dividend Rate (FDR) method. The Select Committee
has also asked officials to investigate whether the PIE rules should be changed to allow
trustees to elect a prescribed investor rate of 19.5% (in addition to the current rates of 0%
or 33% - which will drop to 30% from 1 April 2008).
The latest Taxation Act has also introduced some remedial measures in the treatment of
life insurance savings products. The Select Committee recommended major issues be
considered in the review of the taxation of life insurance, rather than in isolation in the
context of remedial legislation, yet was happy for the remedial amendments to go through.
Many providers tried to anticipate the amendments to the KiwiSaver Act on the basis of the
first draft of the legislation and have included details in their latest investment statement
and prospectus. As a result of the changes made by the last-minute Supplementary Order
Paper (SOP) before the Taxation (KiwiSaver) Tax Act was passed just before Christmas,
some of these representations in the disclosure documents may now be misleading (or
wrong). Other providers have sat back waiting for the details of the new rules to be
finalised – but again, may find that their existing stock of disclosure documentation is no
longer consistent with the legal position, or it fails to cover off all relevant details in a
manner that complies with the Securities Regulations.
The Government has recognised that this may be the case and has tried to provide relief.
This comes in the form of new section 234 of the KiwiSaver Act. Section 234 provides for
non-compliance with any legislation before 1 February 2008 to be ignored unless it
continued after this date, where the non-compliance is due to the amendments provided by
the Taxation (KiwiSaver) Act 2007.
We welcomed the intention behind this relief as it gave providers some breathing space to review their disclosure documents in light of the law changes. The only problem is that the availability of the relief was so restricted as to be of very limited value to anyone: having just the last two weeks of Christmas and January to effect changes was never going to be enough time where a change was actually required.
Recognising this limitation, Kensington Swan participated in an urgent initiative to secure further relief. That came in the form of the KiwiSaver Amendment Regulations 2008, which
came into force on 1 February. What these regulations provide is relief from the strict
requirements under the Securities Regulations for information in investment statements to
be contained under the correct heading within the investment statement.
The relief only applies to investment statements first distributed before 1 April 2008, and
only extends to information required to be disclosed as a result of the passing of the
December KiwiSaver Act changes. Relief also required that the relevant information is
provided in the form of an addendum to the investment statement, or otherwise forms part
of the investment statement – there is no relief from not providing the information at all.
The relief only lasts until 31 July 2008 – hopefully, ample time for providers to assimilate
the information required as a result of the latest legislative changes within the body of their
investment statements.
The relief provided is more limited than had been lobbied for – but in its final from the
regulations address a concern we had with providers placing their total reliance on
section 234. Although that relief provision was extensive, we still have an issue with having
incorrect information circulating, and resulting confusion. The current investment statement
relief reflects a pragmatic approach to a practical issue, but does not necessarily overcome
the Fair Trading concern of persisting with circulating information in an investment
statement that may be materially out of date, relying on information set out elsewhere in the
investment statement to correctly represent the position.
The best practice for providers must be to ensure their investment statements are materially accurate in every respect, at all times. The KiwiSaver Amendment Regulations provide a period of relief from technical non-compliance with Securities Regulations, but if you are going to the trouble of appending any additional information now required, the best approach must be to replace out-of-date stocks of investment statements as soon as possible.
Once again ASFONZ has ensured that our voice is heard on behalf of members. In the first two months of 2008 we have made submissions on the following:-
- Changes to Investment Statements - Information about Advisor Disclosure
- Financial Service Providers (Registration and Dispute Resolution) Bill
For a copy of the relevant submissions please click here
Put these dates in your diary NOW!
ASFONZ is planning for another busy year in 2008 and we want to forewarn you about upcoming events: -
The second in our 2008 series of networking events is planned for:-
Wellington - on Wednesday, 2 April 2008 (a breakfast)
Auckland - on Thursday, 3 April 2008 (a breakfast)
The keynote speaker, topic and the venue information will be available early in March. Meanwhile, put the dates in your diary NOW.
Our thanks go to all those who joined us to hear Dr. Stephen Wood talk on the topic:-
Yeah, But What If............!!?? Doomsday Scenarios vs Investing for the Long Term
For a copy of Dr. Wood's presentation please click here.
We will be delivering our core education workshops throughout 2008. The education programme will be delivered in Wellington or Auckland subject to registration numbers. If demand exists to deliver the modules elsewhere, or to a specific group, we will make every effort to satisfy that need.
12 May 2008, 11 August 2008 & 10 November 2008
13 May 2008, 12 August 2008 & 11 November 2008
15 May 2008, 14 August 2008 & 13 November 2008
14 May 2008, 13 August 2008 & 12 November 2008
To book into the 2008 Education Programme click here and choose the workshop that best suits your needs.
ASFONZ thanks KensingtonSwan for permission to publish information contained in their February edition of Financial Law Update in this edition of SuperNews.
We would also like to thank Russell Investments for allowing Dr. Stephen Wood to be our Industry Event keynote speaker while he was visiting New Zealand this month.