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Advisers express concerns over finance companies

Financial advisers are echoing concerns raised by independent research houses and the Securities Commission over the quality of fixed interest products.

Wednesday, October 27th 2004, 10:36PM
A survey by the company shows that 76% of advisers are feeling uncomfortable about the quality of at least some debt securities.

Tower asked advisers a range of questions following the release of the recent Securities Commission's discussion paper on finance company disclosure quizzing them about issues such as confidence and the level of documentation available to them.

Nearly 68% of those who responded felt they would not be confident in finding out and understanding the accounting policies of issuers of debt securities.

Advisers were also not confident about finding out and understanding the company activities and related-party lending risks of issuers of debt securities, with 63% of respondents not confident.

Even in areas where advisers were more confident, more than 30% of advisers said they would not be able to estimate the approximate credit risk, duration risk and liquidity risk of various debt securities, or know what principal risks should be disclosed in investment statements for debt securities.

Tower's chief executive - investment businesses - Paul Bevin says the survey reinforces the message it has been sending clients about being wary of fixed interest investments.

"When financial advisers are saying they cannot confidently identify risks, how are regular New Zealand investors going to get it right?"

"Many investors seem to prefer fixed interest investments to shares at present because they have found shares, particularly international shares, have sometimes lost money. But they often make the mistake of chasing the highest yielding fixed interest securities without appreciating that the risk of default is sometimes as great as owning shares. In many cases they are not being paid enough extra yield to reflect the risk of capital loss."

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