ASIC on advisors commission. Upfront Investor share market report 24-08-09

http://www.youtube.com/watch?v=OI0lATPvxgU

ASIC, in its submission to a parliamentary enquiry into financial products and services, has been critical of the trail fees or commissions paid to financial advisors, and rightly so. Many investors have indicated that they do not use a financial planner because they feel a lack of independence in the advice they receive, and that planners do not necessarily add value to what they could, otherwise, do themselves. It’s no wonder people think this way when many planners rely on the product provider to supply both their remuneration and their education, which can lead to the planner being biased towards certain product.

Allowing fees to be rebated back to the client ensures that advisors will concentrate on what is in the best interest of the client rather than which product provides the best trail. While removing commissions or trials from advisors remuneration is a good start, more needs to be done, particularly given that most advisors are involved with dealer groups owned or controlled by product providers. Until advisors are totally independent of product providers, Australian’s are unlikely to receive truly independent advice.

So what can we expect in the market?

This week the market has unfolded in stark contrast to last week, given that it has traded down in price and over the past three days has shown strong signs of indecision. This is particularly evident over the past two days as the range between the low and high for each day was in excess of 50 points yet both opened and closed near the bottom of the day’s range. Generally, when markets are indecisive it signals a reversal of the prevailing trend, although we need to see the market fall further before we can confirm it is starting its move down into the low in September that I have been expecting.

If the market is moving down into its low, then price will fall below 4000 points and most likely trade to around 3800 points, with a possibility that it could fall as far as 3600 points. Given this, I recommend investors set a stop loss on the stocks they currently hold; firstly to protect any profits made over the past few months, and secondly to protect capital. Right now it is wise to be conservative and to sit back and watch until we can confirm which direction the market will travel in the short term.

Dale Gillham

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