Unbiased advice

Q I bought some individual bonds from a stockbroker without receiving any advice as to which was the most appropriate. I believe the term used was "execution only". What comeback do I have if anything were to go wrong? If I had received advice, instead, should this have cost me more in commission fees?

A Organisations such as certain stockbrokers, Internet-based and many direct, telephone-based companies, will provide a limited choice of financial products to purchase without offering any advice at all.

In such a circumstance, it is entirely up to you to determine whether the products they are selling are suitable. As no advice is given, the stockbroker simply executes your decision, hence the term "execution only".

This approach is fine if you are qualified to make your own investment decisions and stand by them, whether good or bad. For this service, the stockbroker charges a commission fee for making any purchases and again when you sell.

As the broker has simply executed your instruction, there is no comeback should the investment(s) you have chosen go wrong. As you are in complete control of your finances, you are also responsible for checking periodically how your investments are performing.

You cannot rely on the broker to update you as you have not sought his advice. Instead, many investors approach their bank for 'advice'. While most banks have a range of investment products to choose from, they are typically the bank's own, in-house products, restricting the investor's choice yet again. The advice given therefore tends to be limited again as either the bank's own products are sold or a very limited 'white list' of external investments are offered.

So how do you obtain independent and unbiased advice as to where to invest? Do all companies, other than banks, provide independent advice?

Although there are a great number of companies that are authorised to provide investment services in Malta, the majority are still tied in some way to a particular investment company, i.e. they actively promote one particular company's product(s).

Such an approach is therefore not dissimilar to the role of a bank that offers a limited range also. There are, however, still a limited number of companies that do offer independent advice, that is professionals who are committed to providing high quality and totally unbiased financial advice to people from all walks of life.

Such advisers are obliged to offer what is termed "suitable advice". This means that they have to gain a full understanding of your circumstances and requirements before helping to choose any financial products.

They will also record your information so you can double-check that they really have understood your needs. This 'getting to know you' process is the most important step in the process and must be done before any actual advice can be given.

As regards costs, some independent financial advisers may make a charge for their advisory services. It is however more common that their fee is contained in the pricing of the investment products.

Financial decisions are typically tough decisions to make. By receiving the appropriate, qualified and unbiased advice, you stand a much better chance of getting things right.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@ hollingsworth-int.com.
Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.