Adviser feedback 04/03/99

Should financial planners advise on direct shares?

It's an interesting issue. I guess it depends on your client base and their level of demand for stockbroking.

It raises a few problems, though. One problem is undertaking the extra study to obtain a broking licence. Another problem is that of having to do a lot of research and of having to keep up with a company's performance in the market place.

Also, you really need to be more office-bound in a broking situation and this is restrictive to financial planners who are out of the office to a certain degree.

When a client rings and wants to buy shares, for example, you need to be there to do this straight away.

It would add to a planner's liability, in the sense that you would need to be spot on with any advice you give out and I feel you would need to weigh up the financial results of going into a more broking role.

Perhaps we need to see the future of wrap accounts and how they develop in the market before we can make a final decision over whether to be licensed as stockbrokers or not.

Warren McHattan, managing director, Warren McHattan Financial Services, Sydney

In the case of advising on direct shares, it's probably not a direct line of business but more a part of an overall investment scheme. This is the case particularly if a financial planner has access to a broker they feel comfortable with.

With my business, it depends on the client and on the level of direct shares the client wants to invest, as to whether I'll feel comfortable offering them advice on their direct shares. For example, if one of my clients shops at Myer and comes in to see me specifically about investing in Myer shares, then depending on the amount he or she wants to invest in these shares, it's OK. I don't really have a problem offering advice to the mum and dad investors, but if someone comes up to me with $120,000 they want invested solely in direct shares, then I wouldn't conduct their review without seeking out the opinion of a broker.

Most of my work is in the managed funds area, and most of my clients' money is invested here. There has been a recent trend of floats, such as the Telstra, AMP and Commonwealth Bank floats, but even here I have passed on the advice of brokers to our clients.

Financial planners are going to have to be more informed or connected directly with a broker in the future. It's like the relationship between a financial planner and a solicitor or an accountant. When you give advice to a client on estate planning, you have to also draw on a solicitor for the nuts and bolts.

Peter Budge, certified financial planner and partner, Primeplan Financial Services, Melbourne

I don't have a problem with it - providing the research and back up information is accessible, then why not? We can access research like a broker and there is a huge amount of information available to the general public that we can also use.

Financial planners are able to offer advice that may perhaps be more impartial than the advice of a broker.

It's an added responsibility and it's important to have good research to back you up. We are able also to draw on brokers' advice and we look at broker reports and Australian stock exchange information - the company releases that are available to the general public.

The only difficulty of most major floats of late has been getting sufficient access to them. Getting decent share allocations in these floats is more of an issue than whether or not we should be offering advice to clients on these floats.

Provided planners have access to research, I don't think there is any reason why planners shouldn't offer advice on direct shares.

Ross Barry, director and certified financial planner, RBL Financial Services, Melbourne

Yes, as far as I'm concerned, financial advisers are equally as competent as stockbroking firms to give advice to clients on direct shares. As long as a financial adviser has a licence to do it, there's no problem. I believe that in every client's portfolio there is a need for liquidity and you can achieve this aim through having clients invest in direct shares.

Another advantage of direct shares is the better returns you receive than what you would receive ordinarily from a fund manager. I've been involved in the market for about 40 years and I think one of the reasons many advisers shy away from offering advice on direct shares stems from commissions. Many financial advisers aren't prepared to offer advice in direct shares but instead pour their clients' money into managed funds and this is purely on a costs basis. A lot of this thinking is commission driven.

Not every adviser is entirely comfortable in direct shares but I don't have any problems offering clients advice in this area.

Brian Rosser, financial adviser/certified financial planner, Sanderson Blair, Adelaide