Tuesday, December 15, 2009

Why Australians love DIY Investing — and some cautions

Cameron Hemming, National Business Development Manager

As investors become increasingly aware of the need to invest in diversified assets other than cash and with the financial sector offering a proliferation of investment products to choose from, the demand from proactive investors wanting control over their investment decisions has grown. This demand has been supported by the rapid development of technology to enable investors to be informed and educated and to invest directly into the market through internet based trading platforms or via brokers. Through the internet, investors now have access to a vast amount of information to educate them on how to invest and how to investigate their investment options. Conversely, the internet has enabled product providers and brokers to create environments where investors can invest directly into these products or the market itself.

Four main investment vehicles

There are four main vehicles DIY investors can use to invest their savings and their superannuation; these are share trading, margin lending, self managed super funds, managed funds and managed accounts.

Today’s DIY investor has access to these investment tools and markets, both local and global, and they also have access to high quality support resources through government and professional services. The most significant and critical areas of support for DIY investors are regulatory and legal.

Investment tools for DIY investors

Although DIY investment tools can be useful for a DIY investor, DIY investors may have risks through not seeking advice — for example:

o insufficient or inaccurate investment information, research;

o poor product quality or selection;

o poor timing, personal or market; and

o poor asset diversification.

Whether an investor decides to be self sufficient or to use professional services to guide their investment decisions, they are spoilt with choice and heavily supported by investment tools, information, products and resources. Although this freedom can increase their investment risk, an investor is always in a better decision making position with greater information and product selection.

The regulators protecting the DIY investor

The Australian Government has introduced a strong regulatory framework through its corporate, markets and financial services regulator called ASIC — the Australian Securities Investments Commission. In March 2002, ASIC introduced an extensive reform program examining regulatory requirements applying to the financial services industry. The Financial Services Reform Act, which amended the Corporations Act, imposes:

o a single licensing regime for financial sales, advice and dealings in relation to financial products;

o consistent and comparable financial product disclosure; and

o a single authorisation procedure for financial exchanges and clearing and settlement facilities.

(ASIC, The Financial Services Reform Act, 05.06.2007)

The regulatory framework covers a wide range of financial products including securities, derivatives, general and life insurance, superannuation, deposit accounts and means of payment facilities. This provides DIY investors with a level of protection against high risk, low quality and potentially illegal investment scams.

Cleardocs and the documents

Technology companies such as Cleardocs have enabled DIY investors to produce legal documents to establish investment structures such as trusts and SMSF’s. Through web based systems, the DIY investor can now create their investment structure in a timely, cost effective manner without having to visit a lawyer and pay the high fees generally charged. Cleardocs has used the services of a reputable large law firm, Maddocks, to provide the master documents and has used internet technology to deliver a self-service environment for the DIY investor to create their investment structure.

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