The new economy has brought with it new criteria for investor protection, a senior ASIC commissioner has told members of the FPA Melbourne chapter.
The new economy has brought with it new criteria for investor protection, a senior ASIC commissioner has told members of the FPA Melbourne chapter.
Sue Carter, ASIC’s Victorian regional commissioner outlined the new criteria for the financial planning industry: the need to protect investors, ensuring a fair, efficient and transparent market and a reduction of system risk.
“The well-informed investor is a protected investor,” she said, warning that: “Markets are cyclic creatures. Everyone loses interest in corporate regulation when the market booms.”
The new economy offerings require special scrutiny by financial advisers, she said. Initial public offerings need to be investigated fully; investors need to know the total number of shares being offered to the public; as well as any business relationships.
“And they need to understand that high offering prices and share dilution may affect returns,” Carter said.
Investors and advisers need to scrutinise the valuation of high-tech companies in accounts and financial reports, she said, citing the case of the ASX requiring e-commerce firms to reveal cash flows. There needs to be an understanding of the difference between investing and trading and there also needs to be consistent methods of accounting.
Carter said some investors do not understand that on-line trading does not necessarily mean quicker execution of an order. Likewise, some investors do not understand the risks and costs involved in margin borrowing.
There is a widespread need to gauge objectivity in investment advice.
“And financial advisers must remain mindful of investor suitability,” she added.
