Clients relying on advisers who outsource research

A recent survey has shown that while the majority of investors turn to professionals for advice beyond publicly available information they may not be getting what they paid for, with the large majority of advisers working only from dealer group recommended lists.

The survey conducted by The University of Melbourne’s Professor Ian Ramsay, who is also the director of the Centre for Corporate Law and Securities Regulation at the university, examined the use of prospectuses by investors and professional advisers.

The results indicate professional investment advisers are still in high demand from investors, with only 36 per cent of investor respondents saying prospectuses give sufficient information to make an investment decision.

Slightly more than half of investors still seek professional advice after reading prospectuses, with 56 per cent of respondents saying prospectuses are difficult to understand — particularly the legal and technical jargon and sections dealing with financial matters. Prospectuses were described as too detailed, too long and repetitive.

Of the respondents who own shares directly, 60 per cent use a stockbroker who provides an advisory service, but only 27 per cent have a financial planner.

In theory, direct share investors said the most popular source of information for investment decisions is the newspaper, followed by prospectuses.

In practice, however, when it came to their most recent investment decision, investors looked to newspapers, investment magazines and brokers before they turned to prospectuses.

76 per cent of respondents check share performance at least weekly, 44 per cent daily, mainly in newspapers or on the internet.

More than half of the respondents spent under an hour reading the prospectus for their most recent investment, with others who didn’t read it deterred by complexity.

Investors may not be getting what they paid for, however, when they turn to professional advisers, with 73 per cent of advisers surveyed admitting they do not conduct their own research and analysis of companies.

For the 27 per cent who did, analyst’s reports were flagged as most important, followed closely by prospectuses. Of those who use external product research, 89 out of 171 respondents used their internal dealership, 41 usedvan Eykand 33 usedAssirt.

The survey says while many of the responses were spread across generic headings such as ‘dealer group’, ‘stockbrokers’ and ‘press’ this was not the case with van Eyk and Assirt, which were statistically significant.

The survey gathered response from 891 individual investors who are members of the Australian Shareholders Association and 171 professional investment advisers, with the range of annual household income evenly spread above $30,000, with 24 per cent earning an income of between $50,000 and $74,999 per annum.