KUALA LUMPUR – The new Guidance Note on the Provision of Investment Advice issued by the Securities Commission (SC) recently will provide clarification on what may constitute indulging in the regulated activity of investment advice, said the Minority Shareholders’ Watch Group (MSWG).
MSWG chief executive Devanesan Evanson said among others, 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 when there is some form of payment, fee or gratification being received by the investment adviser, whether directly or indirectly.
“SC’s Guidance Note on the Provision of Investment Advice is indeed timely as we have seen a proliferation of activities on the internet that may cross the fine line between investment guidance (an unlicensed activity) and the regulated activity of investment advice (a licensed activity),” he told Bernama.
He said the proliferation of unlicensed “investment advisers” is worrying.
“Many individuals, either ignorantly or purposely, may be offering investment advice, which is a licensed regulated activity. For the ignorant, the guidance is a timely education, and for those who knowingly offer investment advice without a licence, it is a timely forewarning.”
The regulator issued the guidance note on December 30 last year to provide clarity to the industry and public on conduct that is considered as falling within the regulated activity of providing investment advice under the Capital Markets and Services Act 2007 (CMSA).
In a statement, SC said the note was issued in response to the increasing number of queries and complaints regarding various social media sites, chat rooms and messaging apps that appear to make specific stock recommendations and/or give investment advice to netizens, who are given access to these recommendations and/or advice upon the payment of a fee.
Financial Planning Association of Malaysia chief executive Linnet Lee concurs that the note will provide clarity to both the industry and general public.
“Naturally, being from a certifying and professional financial planning body, I wholeheartedly support the guidance note.”
Devanesan said minority shareholders must also be able to differentiate between licensed and unlicensed investment advisers.
“Minority shareholders can peruse the research reports of licensed investment advisers that are available in the media. Even these licensed advisers 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 the risks are lower when investors rely on licensed advisers, as SC’s expectation of them is high.
“As a person licensed under CMSA, they are required to adhere to certain standards when carrying out the regulated activity, so as to not cast doubt on their competency, judgment 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 sanctions being imposed on them.”
Nonetheless, he said, the guidance note will be effective as “investment gurus” have now been put on notice as to what constitutes the regulated activity of investment advice.
“They cannot feign ignorance now.”
He said SC has also highlighted examples of offences that an unlicensed person can be held liable for under securities laws.
“An offence under CMSA is punishable with a fine not exceeding RM10 million, or imprisonment not exceeding 10 years, or both, if found guilty. This ought to act as a deterrent to those indulging in this regulated activity without the requisite licence from SC.
“However, there is no substitute for exercising greater vigilance and common sense to ensure that the minority shareholder is not duped by these unlicensed investment advisers.” – Bernama, January 3, 2021
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