Where To Go For Investment Advice

Australians are faced with a plethora of investment opportunities across numerous asset classes and instruments, with each having different risk profiles and expected returns. From these one needs to assess, rank and select those that are most suitable for one’s personal circumstances. This is a daunting task, even for those who have spent many years studying investment and (corporate and asset) valuation.

The vast majority of us need the advice of an investment expert. For medical advice one sees a doctor, for legal advice, a lawyer; for accounting advice, an accountant; for tax advice, a tax expert, and so on. But who does one approach for investment advice?  The answer is: You are on your own, there isn’t anyone!

It is astonishing that in this day and age there is no profession providing investment advice, at least not in the Australian market. I am also not aware of any business that provides investment advice to the general population and not aware of anyone doing so on any of the major asset classes.

Financial planners do not provide investment advice and nor do stockbrokers and real estate agents. Let’s take a brief look at each of those professions:

  • ‘Financial planners’ are effectively an outsourced ‘sales function’ for the funds management industry (in particular for the funds listed on the platform they or their respective firms are associated) and (as they are paid sales commissions by the funds management industry) do not meet the crucial test of being independent. In the case of some of ‘the majors’ they are essentially an in-house sales function for a sister business. As a sector, their educational qualifications fall well short of those one would generally expect from an investment expert. At best, financial planners could give one some insight into which of those funds on the platform with which they are associated would be most suitable for one.
  • ‘Stockbrokers’ also do not provide investment advice, not even in relation to listed ‘blue-chip’ shares. They earn their income on each trade (buy and sell), so are incentivized to encourage one to trade, and trade regularly, in listed securities. They don’t want one to invest. They don’t want one to buy and hold for an extended period. Their recommendations have a short term focus, which is on whether the particular security is over-valued or under-valued at that time. Their argument is that the market will soon come to the same realization and the share / unit price will change accordingly, after which sells or buys (as the case may be) to exit one’s position. Investors on the other hand want to know what their expected return would be over an assumed medium to long term holding period.  Stockbrokers and their analysts do not do those calculations or if they do, they do not disclose the calculations or the results to their customers.
  • Real estate agents are invariably engaged by sellers to find potential buyers and broker a sale of the real estate concerned. Their remuneration is generally linked to the sale price, in which case ‘the higher the sale price, the higher their fee’. Their business is to encourage property owners to sell and others to buy. They do not give investment advice. Nor does a ‘buyers advocate’. Their game is to find the best properties (from the buyer’s perspective) at the lowest price for their client, who has already made the decision to buy real estate.

Since the major players in the managed funds industry, listed securities and real estate markets have a conflict of interest, are not independent and do not provide investment advice, who else could one consider?

The accounting profession comes to mind. One’s accountant would probably be independent, have no conflict of interest and have at least a reasonable understanding of both financial statements and the main investment classes. They however generally do not provide investment advice nor do they hold suitable qualifications for doing so.  I would argue that they are much better placed than financial planners, stockbrokers and real estate agents to provide investment advice, but they are not inclined to do so (probably not permitted under their professional indemnity insurance and probably do not hold the necessary financial securities license) and few would have built up the knowledge base and systems to do so.

There is no profession, at least none in Australia, that provides investment advice (which by definition needs to be independent and free of conflicts of interest) to the general population across the main investment classes (of listed securities, managed funds and real estate) let alone on alternative investments. This is unfortunate, to say the least.

I put the blame partly on our politicians and corporate cop (ASIC). They have over the past 20 years allowed the financial planning sector to misrepresent their function, by falsely claiming to provide financial advice. In actual fact the sector is merely an outsourced sales function for the funds management industry. The vast majority of these financial planners are wholly unqualified to provide investment advice, particularly not on a variety of investment classes.

So when considering investment opportunities one is basically ‘on one’s own’. You may however find the commentary set out under the ‘R&M Investors’ section of the Rogers Morris website  –  http://www.rogersmorris.com.au/rm-investors/ – to be at least interesting reading. While it includes general commentary on various classes of investments my aim was to encourage prospective investors to consider the expected returns for the risk involved. I am however also conflicted in this regard. I am seeking prospective investors for two Managed Funds that Rogers Morris is establishing. One to take preferred equity positions in unlisted companies, the other to invest in debt securities issued unlisted companies.


By: Mark M.J. Morris