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If you receive an unexpected letter offering to buy your investments, there are certain checks you should make before accepting the offer. The common traps are:
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offers to pay you much less than what your investment is worth; and
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offers where you will not be paid in full for a long period of time.
It is not illegal to make an unsolicited offer to buy someone's investments, or to offer to buy them at a price below their current market value. However, it is against the law to mislead or deceive investors into accepting an offer.
The Financial Markets Authority (FMA) wants to ensure that investors receiving unsolicited offers have the information required to make an informed decision.
Key things to check in an unsolicited offer document
1. Who is making the offer?
Read the offer to see exactly who is making it. Some offers have used official looking letterhead, or names that sound like your company or a stock exchange, and may be sent at the same time as a company's or its receivers' own letters to shareholders. You can contact the company's investor relations department (or its receiver or liquidator if applicable) to check whether the offer is an 'official' communication or not.
2. How much will I be paid for my investment?
What is the price being offered?
Read the offer to see exactly what price you will receive for your investment. Check whether the offer is in the same currency that the investment is normally traded in.
When will you receive payment?
Read the offer to see exactly when you will receive payment for your investment. Some offers spread the price by instalments over a number of years - in these cases the true value of the offer may be much less than it appears to be because you will have to wait for your money. In addition, there is also a risk that if payment instalments are spread over a lengthy period the offeror might go out of business and you will not receive all of the promised payments.
If you sell your investment through a sharebroker you are likely to receive payment within 3 days.
3. How much is my investment worth?
Get an up to date market price for your investment and compare it with the price being offered.
Listed on a registered exchange
If your investment is listed on a registered exchange you can find the most recent price in newspapers or on the stock exchange's website.
Not listed on a registered exchange
For investments that are not listed on a registered exchange, the market value of your investment may be more difficult to establish. Some places to check are:
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the company (or other entity) you have invested in, or the original offer documents (the investment statement and prospectus). You can access the prospectus online by searching under the company's name at the Companies Office website
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the Unlisted website. Your investment might be traded on Unlisted, an unregisteredsecurities trading facility. If so, the Unlisted website may have information about what price the investment has recently been selling for, and details of the recent trading history. It is important to note that Unlisted is not a registered exchange. As such, it is not subject to FMA oversight under the Securities Markets Act, and the Securities Market Act provisions relating to insider trading, market manipulation, continuous disclosure, directors' and officers' relevant interest disclosure, and substantial security holder disclosure do not apply to investments traded on Unlisted;
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if the company you invested in is in receivership, receiver's reports can give a good indication of how much you are likely to receive for your investment. You can find copies of the receiver's reports by searching under the company's name at the Companies Office website -and you can contact the receiver directly to find out how much you are likely to receive and when you can expect payment;
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check with an Authorised Financial Adviser (see guidance below on how to find a financial adviser).
4. Are there any brokerage fees?
Check the offer to see if you will have to pay any brokerage fees, and if so, how much the fees are.
If you sell your investment through a sharebroker directly you will receive the full market price for your investment less any brokerage fees. Different sharebrokers charge different fees, but generally you should expect to pay between $30 to $75 as a minimum brokerage fee.
5. How do I find a financial adviser or sharebroker?
You can also search the Yellow® Pages for 'financial advisers' or 'sharebrokers'.
