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Your right to know - get informed about investing. Securities Commission brochure [2004] NZSecCom 6 (1 June 2004)

Last Updated: 9 November 2014

YOUR RIGHT TO KNOW

GET INFORMED ABOUT INVESTING

SECURITIES COMMISSION NEW ZEALAND
Helping people make better investment decisions

Do you know the single biggest difference between people who make money investing and those who lose their shirts? It’s information.

People who succeed at investing do their homework before they hand over any money.

Most people who become victims of scams have invested on the basis of someone’s word and have not properly checked out the investment.

GETTING INFORMED

It’s not hard to get information about genuine investments. In fact, the law gives you the right to this information. What’s more, the most important information must be given to you in a simplified form that won’t take long to read. This includes crucial information about:

• the risks involved in the investment,
• the expected returns,
• the fees you will pay, and
• how easily you can cash it in.

You are entitled to this information. You should ask for it and use it when making your investment decisions. Absence of the legally required information is a sign of a scam.

KEEP ASKING QUESTIONS

If you are unsure about any aspects of an investment, keep asking questions or seek a second opinion. In the investment world asking questions is not being dumb – it is the sign of an astute investor. If your question is about an important issue (e.g. fees you will pay, or the security of your money) get the answer in writing.

SAYING "NO" IS OKAY

If you can’t understand the answers to your questions, don’t invest. It’s your money. Why hand it over to someone who can’t, or won’t, fully explain what will happen to it?

KEY INFORMATION YOU ARE ENTITLED TO

Most investments offered to people in New Zealand require two offer documents – the investment statement and the prospectus.* These documents are prepared by the "issuer" i.e. the company or organisation offering the investment.

THE INVESTMENT STATEMENT

The investment statement must be given to you before you pay any money. The investment statement should answer these questions:

• What sort of investment is this? What am I actually buying?
• Who is involved in providing it to me?
• How much do I pay?
• What are the charges?
• What returns will I get?
• What are my risks?
• Can the investment be altered?
• How do I cash in my investment?
• Who do I contact with inquiries about my investment?
• Is there anyone I can complain to if I have a problem with the investment?
• What other information is available about this investment?

All investment statements must answer these questions. This enables people to compare one investment with another.

Read the investment statement. If you don’t you may not be aware of important factors that could strongly affect your decision on whether or not to invest.

THE PROSPECTUS

The prospectus has detailed information about an investment, including specific financial and legal information. Some of this may be easy for ordinary investors to understand, but some of it will be complex.

The prospectus has information that is not in the investment statement. For example:

• what the people promoting the investment stand to gain from it, and any conflicts of interest they may have;
• important commitments the company may have (e.g. long term leases on buildings, key contracts, and any court proceedings it is involved in);
• the company’s most recent financial information, and in some cases, financial information for the previous five years;
• the key points in any trust deed or participation deed. These deeds are important legal documents. They cover things like how the trustee or statutory supervisor can protect investors, any financial limits imposed on the trust, and whether other people could be ahead of you in the line up of creditors - meaning they’d be paid out before you, should the company go bust.

^*Some investments don’t require these documents, but they do have to have other documents that explain the investment (e.g. a product disclosure document or a key features document).

THE PROSPECTUS (Continued)

If the investment is recommended by a financial adviser he or she should have read the prospectus. Ask the adviser to explain any important points in the prospectus.

You can ask the issuer (the person or company offering the investment) to send you a prospectus free of charge. They must send it within 5 days of receiving your request. The prospectus must be registered with the Companies Office, where the public can view it. Prospectuses can be viewed at www.companies.govt.nz.

DEEDS AND CONSITUTIONS

Deeds are legal documents that set out what the manager of an investment can do with investors’ money. They also explain investors’ rights, such as the trustees’ powers to look after investors’ interests.

Bonds and debentures (except debentures offered by registered banks), superannuation schemes, and unit trusts must have a trust deed. Other New Zealand based collective investment schemes must have a deed of participation.

There is no deed for shares. Instead, the company must have a constitution which sets out the rules for running the company.

Deeds and constitutions can be complex and hard for ordinary investors to understand. An investment adviser should be familiar with them for any investment they recommend to you. Ask them to explain any important points. The key terms of a deed must be summarised in the prospectus.

You can ask for the trust deed or deed of participation. Most deeds must also be registered with the Companies Office, where people can see them.

INFORMATION YOU SHOULD GET AFTER YOU INVEST

CONFIRMATION OF INVESTMENT

You are entitled to written confirmation of your investment. For one-off investments (e.g. buying a debenture) a certificate will be sent for each investment. If you make regular payments into one investment scheme (e.g. a unit trust) the managers are generally required to send a six monthly statement showing investments made in that period. However, you can ask for an updated statement at any time.

FINANCIAL STATEMENTS

Annual financial statements are required for almost all investments. These must be audited and registered with the Companies Office. Investors can ask for a copy of the financial statements.

ANNUAL REPORTS

Companies and superannuation scheme trustees must produce annual reports which explain how the company or the scheme performed over the year.

Important information in an annual report includes:

• financial statements for the previous financial year, including whether the investment made a profit or a loss, what happened to the value of its assets or debts, and payments to investors;
• notes to the financial statements to help investors understand the accounts;
• an audit report confirming that the financial statements meet required accounting standards;
• the names of the directors, and payments made to directors and senior managers; and
• for share investments, the names and shareholdings of the largest shareholders.

Investors are entitled to be sent the annual report. It will give you pointers on the future prospects of the investment and help you decide whether to keep your money in the investment, or sell up and invest somewhere else.

GUARANTEES

Some investments have guarantees, where someone offers to protect you from losing money on an investment.

How useful the guarantee is depends on:

• the terms of the guarantee (e.g. does it cover all or part of your money, and when the money will be paid out);
• the financial strength of the person or organisation who offers it. If the guarantor is financially weak it may not mean much.

If the guarantor is financially linked to the company you are investing in, you may find that both go bust at the same time.

Investors are entitled to a copy of the guarantee and of the most recent annual and half-year financial statements of the guarantor. These will help you decide if the guarantor has enough assets to meet their obligations.

This leaflet is for general guidance only. If you are in doubt or would like definitive information you should seek professional advice.

HOW TO CONTACT THE SECURITIES COMMISSION

Level 8, Unisys House
56 The Terrace
PO Box 1179
Wellington

Fax 64 4 472 8076
Email seccom@seccom.govt.nz
Website www.seccom.govt.nz
2004

This information is also available as a printed brochure from the Securities Commission at no cost.

The Securities Commission is New Zealand’s main investment regulator.
We help build confidence in New Zealand’s securities markets.