Adviser issues identified in capital markets

The group tasked with reviewing New Zealand’s capital markets has identified some issues with the way that advisers work.

Thursday, May 9th 2019, 1:23PM

The Capital Markets 2029 Review Steering Committee began its work in March. It was initiated by the NZX and Financial Markets Authority.

“This review is really about getting more people and more companies involved in more vibrant capital markets to build productivity, wealth and opportunity for New Zealanders as we head into the next decade,” chairman Martin Stearne said.

More than 80 interviews have already been completed, including with investors, market issuers, and companies seeking growth capital.

Key themes have now been summarised in a paper that is open for comment.

Some were positive: The local equity market had been a strong performer by international standards, debt markets had grown in depth and liquidity and an efficient secondary market was developing. KiwiSaver was bringing in more domestic savings and had given positive investment returns. There was strengthening of private capital.

But the economy was still heavily SME-driven and there were funding gaps for those wanting to grow.

Direct retail investor participation in the market has declined with the move of major brokers to wealth management models.

“It is hard to access advice on capital market investment unless the investor has a substantial sum to invest. We note regulation of advice will change in the next one or two years,” the paper said.

“Financial advisers are hesitant to recommend equity products where third-party research is not readily available, even though this is not a requirement under current legislation. This means that many small market capitalisation stocks receive limited focus by the broking community.”

Disclosure requirements for entities looking to list were not necessarily aligned with the needs of the audience from whom they sought to raise capital, the paper said.

"The product disclosure statement has been designed for a retail audience, when generally it is advisers and institutions making investment decisions.

"Furthermore, prospective financial information requirements are perceived as too onerous and ‘opting out’ is not a feasible option for most prospective issuers and directors. However, we note new financial advice regulations are being developed and their content and implementation will likely be an area of commentary within the Steering Committee’s report."

The paper also said tax incentives should be considered to encourage more investment by individuals, for example through KiwiSaver settings or other tax-favoured investment regimes like those existing in many offshore jurisdictions.

Tags: capital markets equities NZX