THE new Guidance Note on Provision of Investment Advice issued by the Securities Commission (SC) recently would better clarify what may constitute indulging in regulated activity of investment advice.
Among others, the SC is more likely to consider that a person is “carrying on a business of advising others” if the activity is undertaken in a structured manner with regularity or where there is some form of payments, fees or gratification being received by the investment advisor, directly or indirectly, according to the Minority Shareholders Watch Group (MSWG).
“SC’s Guidance Note on Provision of Investment Advice is indeed timely as we have seen a proliferation of activities in the internet which may cross the fine line between investment guidance (an unlicensed activity) and the regulated activity of investment advice (a licensed activity),” MSWG’s CEO Devanesan Evanson told Bernama.
He said the current trend was indeed worrying as there has been a proliferation of unlicensed “investment advisors”.
“Many individuals – either ignorantly or purposely – may be offering investment advice which is a licensed regulated activity. For the ignorant, the guidance is timely education and for those who knowingly offer investment advice without a licence, it is a timely forewarning,” he said.
The SC issued the guidance note on Dec 30, 2020 to provide clarity to the industry and the public on conduct which it would consider as falling within the regulated activity of providing investment advice under the Capital Markets and Services Act 2007 (CMSA).
In a statement, the regulator said the note was issued in response to the increasing number of queries and complaints received regarding various social media, chat rooms and messaging applications that appear to be providing specific stock recommendations and/or investment advice to members of the public, who are given access to these recommendations and/or advice upon payment of a fee.
The guidance note can be downloaded at www.sc.com.my/regulation/guiding-principles.
Meanwhile, Financial Planning Association of Malaysia CEO Linnet Lee concurred that the guidance note would give clarification to the industry and members of the public on conduct within the regulated activity of providing investment advice under the CMSA 2007.
“Naturally, being from a certifying and professional financial planning body, I wholeheartedly support the guidance note,” she said.
Besides the guidance, Devanesan said minority shareholders must also be able to identify the licensed investment advisors from those who were not licensed.
“Minority shareholders can peruse the research reports of licensed investment advisors that are available in the media. Even these licensed investment advisors do not always get it right.
“At the end of the day, there is a risk when you rely on other people’s investment advice even when they are licensed. There is a risk even when you rely on your own investment analysis. It is an issue of mitigating the risks,” he said.
According to him, the risks are lower when investors rely on licensed investment advisors as the SC’s expectation of them is much higher.
“As a person licensed under the CMSA, they are required to adhere to certain standards in carrying out the regulated activity so as not to cast doubt on their competency, sound judgement, and integrity.
“For example, they should not make any false or misleading representation that is likely to induce someone to invest. If these standards are not adhered to, it can affect their overall fitness and propriety as a licensed person and result in sanction being imposed against them,” he added.
Nonetheless, he said the guidance note will be effective as “investment gurus” have now been put on notice as to what constitutes regulated activity of investment advice.
“They cannot now feign ignorance,” he said.
Other than conducting regulated activity without holding a valid licence, Devanesan said the SC has also highlighted examples of offences that an unlicensed person can be held liable for under the securities laws.
“The offence under the CMSA is punishable with a fine not exceeding RM10 mil or imprisonment not exceeding 10 years or both if found guilty; this ought to act as deterrence to those indulging in this regulated activity without the requisite licence from the SC.
“However, there is no substitute to exercising greater vigilance and common sense to ensure that the minority shareholder is not duped by these unlicensed investment advisors,” he added. – Jan 3, 2021
