The SFC today releases its Report on Selling Practices of Licensed Investment Advisers. To complement the release of this report, the SFC has also published an investor leaflet, Questions to Ask When Seeking Investment Advice.
Background
The SFC has been monitoring the selling practices of investment advisers in Hong Kong and overseas. The SFC conducted a theme inspection on a good mix of 15 SFC licensed advisers, which represents approximately 10% of the total number of SFC licensed advisers (Note 1). The report summarises the findings of the theme inspection and the SFC’s other investigations.
Mrs Alexa Lam, SFC's Executive Director of Intermediaries and Investment Products, said: "Through the release of the report, the SFC aims to enhance the level of awareness in the investment advisory industry of the conduct standard expected of them. As the market gets more competitive, we note with concern that some market participants inspected by SFC appeared to have adopted an increasingly liberal interpretation of the existing regulatory requirements. The report seeks to remind all investment advisers to adhere closely to these requirements so as to maintain market integrity and investor confidence. In parallel, the SFC continues its efforts on investor education through the publication of the investor leaflet. "
Main findings
The SFC’s inspection and investigation have identified a few areas of unsatisfactory practice on the part of some licensed investment advisers. In particular:
- The basis of recommendation for some investment advice appeared questionable; and
- Some investors were not given sufficient explanation or information to make informed decision.
The findings also indicate that most of the regulatory issues identified could have been avoided if the investment advisers had strictly followed the standards in the existing Code of Conduct and Internal Control Guidelines (Note 2). At this point, the SFC is not drawing any inference that these findings would be found in the remaining 90% of the SFC licensed investment advisers. Nevertheless, the report will serve as a set of benchmarks giving all licensed investment advisers a roadmap on how to ensure they stay within the regulatory requirements.
The SFC has also noted instances where investment products without SFC authorisation may have been offered to the public in breach of the Securities and Futures Ordinance (Note 3). Some of these cases are currently under investigation.
Future action
This report provides specific guidance to the industry on certain high level principle requirements. The SFC plans to conduct another theme inspection on licensed investment advisers in 2006 to assess whether the level of compliance has improved.
In addition, the SFC plans to consider and engage the investment advisory industry to explore information disclosure issues such as the feasibility and benefits of requiring investment advisers to disclose to investors the commission and rebates received from product providers. Other possible measures to enhance investor protection will also be studied, such as having investment advisers take up professional indemnity insurance, and clearly identifying for clients the nature of service that will be provided.
Investor leaflet
The leaflet Questions to Ask When Seeking Investment Advice seeks to:
- Educate investors to ask the right questions when seeking investment advice;
- Explain to investors the importance of telling advisers their needs and profile in order to get suitable advice;
- Empower investors to assess the suitability of the investment advice, as well as the pros and cons of recommended products; and
- Remind investors to read and understand client agreements or disclaimers before signing.
As with all other SFC investor publications, the leaflet is available free at the SFC office and the Consumer Advice Centres of the Consumer Council. The electronic version is available under the section of "Publications" - "Dealing with Intermediaries" on the SFC-operated Electronic Investor Resources Centre at www.eirc.hk.
Ends
Notes to Editor:
1. The SFC selected SFC licensed investment advisers with different operational characteristics for the theme inspection. The SFC considered factors such as the types of clientele, the number of sales staff, and the number of clients.
2. "Code of Conduct" means the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. "Internal Control Guidelines" means the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission.
3. Under section 103 of the Securities and Futures Ordinance, it is an offence to issue to the public invitations or documents relating to securities and collective investments unless such invitation or document has been authorised by the SFC or exempted. |