Chipman: Be careful where you get investment advice

Wed, Jul 13th 2011, 11:34 AM

A prominent securities advisor is sending a caveat to the hundreds of Bahamians who will be taking voluntary separation packages from the Bahamas Telecommunications Company: Be careful where you get your investment advice.

Secretary of the Bahamas Association of Securities Dealers (BASD) Reece Chipman says don't look to banks and commercial financial institutions for your investment and financial planning advice, but to a licensed investment advisor or financial planner.  A commercial bank's objectives may trump the investor's, Chipman said, while licensed advisors should be independent to find suitable investments to match their clients' needs.

"You can't go out there thinking anybody who works for a bank or who advertises very well is looking out for your best interest.  You have to look at licensed persons -- persons licensed with organizations that are also licensed and are upholding a certain code of conduct, ethics, and continuing education," Chipman said.

Putting the case for disintermediation - the term investors use to describe going around banks and savings institutions as intermediaries in borrowing and savings to participate directly in the securities markets - Chipman said deposit rates are low, and along with borrowing, these areas are the focus of commercial banks.

"When you're looking at someone that works in commercial banking, they're pretty much looking at either savings or loans, and for the most part the commercial banker will be encouraging you from either a savings or loans perspective, which isn't necessarily looking at any sort of returns, in terms of rates of return, and maximizing the potential of the funds that you have available for investment purposes," said Chipman, the immediate past president of the Bahamas Institute of Chartered Accountants (BICA).

"You want people to start looking at a broader base--where your money can make money."
Solid financial advice is about more than disintermediation, though.  Unethical or ill-informed advisors could still point clients toward inappropriate investments for them.

Looking at the capital markets in The Bahamas, Chipman said that few people can report a positive experience with regard to excess returns.  While part of this was due to the market, according to Chipman, often the investments selected for investors do not align with their investment goals.

According to Chipman, who cited companies that have invested retirement funds in risky securities, many investors are simply not getting value for their investment advice dollar.  He said much of this is due to unregulated, unlicensed financial advisors participating in organizations that are investing on behalf of the public.  According to the noted Series 6 and 7 instructor, it's the key reason he stresses the importance of dealing with duly-licensed planners and advisors.

"I will not recommend persons deal with any institution or individual that's not a member of the BASD to begin with, because that is where we license our financial advisors and broker-dealers and also encourage them to maintain a certain amount of continuing professional education, to ensure the type of advice they are giving people is advice that's in line with the individual's goals, and not just something to get somebody's money, and then put them in investments that really do not meet their financial goals."

Chipman said a current list of licensed individuals and firms could be found online at the BASD's website, www.thebasd.com.  The lay investor will likely have no idea what a fair price is for investment advisory or financial planning services is, but Chipman offered a simple bit of advice to them: Shop around.

"I think persons should just compare and go with the lowest rate possible, because when you look at investment opportunities in The Bahamas, I don't know if one person would suggest anything other than the other," Chipman said.  "I think what's going to be important is who's aggressive enough to get their hands on the better opportunity."
"With so much coming up and coming forward, you'd want to put your money in the hands of an investment advisor that's licensed and aggressive enough to go after the opportunities for you."

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