How good is your research?

- Fritz J de Boer, CFP, NZIJ Financial Services Limited


Much of the rhetoric has been devoted to finger pointing and attempting to lay blame for the failures and losses on various parties such as financial advisers, and even suggestions the government has not done enough to protect investors.

Some of the finger pointing has come from advisers within the industry with one prominent broker in particular obviously deciding that the best form of defence is attack.

However, I am firmly of the opinion that investors need to take personal responsibility for their predicaments. No matter whether they are “do it yourself” investors making their own investment decisions, or investors using the services of an adviser.

The first and most important step in the investment process before making the investment is doing the research or due diligence.

In the case of the DIY investor they need to do extensive research on the investments they are investing in. For those investors utilising the services of an adviser they must do the research on the adviser and establish his or her suitability to provide the appropriate advice.

Of course this is easier said than done. Quite apart from knowing what one should be looking for, gaining access to the appropriate information is difficult at best.

For example, all finance companies and fund managers are required to produce Investment Statements that set out all the information that they are legally required to provide. Some will provide a little more information
than is required. But how does that help the investor sort the good from the bad?

I suggest that the media is of little, if any, help. Additionally, research houses are not infallible, given that their processes are generally retrospective in nature.

If investors are using an adviser, apart from checking on the usual credentials of the adviser, it is extremely important to establish how the adviser determines which investments to recommend. In other words, what research and due diligence do they perform on the products they recommend to their clients?

I would suggest that investors who have lost large investments that were recommended by an adviser, were dealing with an adviser whose research and due diligence was sub-standard.

I take this part of my role as an adviser extremely seriously. Only this last month I spent almost a whole day with one product provider and half a day with another, completing due diligence on their product offering. This involved meeting with key personnel such as directors, chief executive, investment managers, research analysts and administration personnel. In particular, I was seeking to establish a clear understanding of:

• The people involved, their skills, experience and integrity
• The business ownership and their long term intentions
• The processes involved in their business operation
• Their industry/sector expertise
• Their track record and prospects going forward
• The value added vs risk involved
• Client service support
• Information availability and integrity of the information
• Understand what the risks are and what can go wrong.

As can be seen from the above, this degree of due diligence is difficult for the individual investor to complete as it really does require face to face meetings. I suggest also that many advisers do not necessarily do this process well.  As a result of this process, I have a very narrow list of products that I recommend but have found that it serves me, and more importantly my clients, very well.

It is clear from some of the personal losses people have suffered that many people have made just really dumb decisions.

If you want to avoid these mistakes, take personal responsibility and call me on  0800 90 60 90 or 04 499 3592 to discuss how I can help you with your investment decisions.

Alternatively, email fritz@nzij.co.nz