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Regulation makes MRP discussion difficult: Leitch

Increased regulation has meant most consumers will get information about the sale of Mighty River Power shares from the media rather than their financial advisers, says the chairman of the Professional Advisers Association.

Tuesday, April 9th 2013, 6:00AM 10 Comments

by Susan Edmunds

The offer document for the shares, which are expected to start trading next month, was made public on Friday.

Shares are likely to be priced between $2.35 and $2.80 and there have been suggestions that uncertainty over Rio Tinto’s plans for Tiwai Point may push the price to the lower end of that scale.

But investors will nominate a dollar amount they wish to purchase, not a number of shares, so if there are a lot of would-be purchasers, the share price may be pushed up.

PAA chairman Peter Leitch said most potential purchasers would have to get their information from the media, because advisers were hamstrung by regulation. “Advisers can’t really comment. People have got to read the prospectus and make their own decisions.”

He said that whereas in the past, a client might ring an adviser and ask for an opinion, now regulation required that advisers go through the full advice process in order to make any comment. “I can’t tell them whether they are right to buy shares. I would need to say ‘we need to have a meeting’. It’s better just to say I don’t do that.”

Leitch said it was safer for media commentators to give their opinions than it was for financial advisers to weigh in. “It’s the first share float where a lot of people have expressed interest and they will want reassurance, they will call people like me and I kind of can’t say anything.”

« Boutique not necessarily smallIFA working on pro-bono offering »

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Comments from our readers

On 9 April 2013 at 9:41 am Ally said:
I agree with Peter's comments. Furthermore, for a reason I don't understand, brokers are not allowed to publish their research on new offerings until something like 40 days *after* the listing date. By which time. of course, it is not so useful. However, it seems Morningstar can release its research before listing date (useful for those AFAs who won't cross the road unless Morningstar holds their hand). But after Morningstar's DO NOT SUBSCRIBE recommendation on Fonterra (surely one of the worst calls of the year), I would take anything they say with a grain of salt.......
On 9 April 2013 at 9:43 am btw said:
Peter, I think you need to get some better advice yourself. Your conclusions are very (very) flawed. Happy to take your clients of course, but you might want to reassess your position.
On 9 April 2013 at 11:15 am Broker said:
Maybe investors could hold the Government liable for lack of any personalised advice or need analysis if the shares drop in value? After all, they made the rules? They have just decided not to follow them themselves...sets a great example ah?
On 9 April 2013 at 3:31 pm Murray Weatherston said:
Ally can you elaborate on what you understand the basis of the 40 day rule. I could perhaps understand it if this related only to brokers actually involved in putting the offer together (e.g. lead broker)
But I assume those brokers not putting out research will be happy to take the brokerage on any applications bearing their stamp.
On 9 April 2013 at 4:34 pm Realist said:
Obviously there will not be any quality broking house research on Mighty River prior to listing. They all have a massive conflict of interest and obviously want to sell as much product as possible. They also do not want to upset the powers that be, as there are supposed to be a few more large floats over the next 18 months.

Talking of conflicts of interest, it seems amazing that when a potential investor showed an expression of interest and they did not state a particular broker name, within 48 hours a broker had contacted them. They had no history with the broking firm, nor did they hold any direct shares or bonds in their own name. Obviously there must be an information leak somewhere.

One of the most interesting areas of the offer document is the financial information. Should advisers and potential investors really believe the projections? If the projections prove to be reasonably accurate, there is a massive increase in profitability. It almost looks like the government would not lose any cash-flow as the increase in dividends looks set to make up for the sale of 49%. People need to remember that the projection is only one potential outcome, based on a myriad of assumptions.
On 9 April 2013 at 5:59 pm Informed said:
There are free investment seminars around the country on the Mighty River float. Also, share adviser AFAs are specialists in equity markets, whereas insurance-investment generalists are not - and it may be better not to get involved. The 'class advice' in the media has also done a reasonable job of highlighting corporate risk.
On 9 April 2013 at 6:05 pm Phillip Gray said:
I write on behalf of Morningstar, and would like to provide some background to help readers understand our approach to undertaking stock research. We believe that it’s more important to understand a company’s long-term fundamentals, such as cashflow, competitive position, governance/stewardship, and margin of safety, than to focus on short-term market sentiment and price movements. Because of this focus, our company valuations, stock analyst research, and buy/sell recommendations will at points in the cycle differ from those of brokers and other investors. This is a process that has been applied globally for many years and which has proven to be a source of medium- to long-term outperformance for our clients. Readers should feel free to contact us directly for more information about our approach to researching stocks.
On 9 April 2013 at 7:24 pm traveller said:
Boutique: a small shop or department selling clothes and other items of fashion.(OED)

On 10 April 2013 at 12:11 pm AFA Muggins said:
Phillip,

"This is a process that has been applied globally for many years and which has proven to be a source of medium- to long-term outperformance for our clients"

What is it that you are saying Morningstar recommendations have out performed? The market that we all participate in? Your own model portfolios? Can you back this up with some facts for us please?
On 10 April 2013 at 3:53 pm brent sheather said:
Well said AFA maggins ! show us the money Morningstar ! How many analysts do you have dedicated to NZ equities and what is their experience..

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