Why retail investors shun collective investment scheme

Understanding of operating mechanism of Collective Investment Schemes and retail investors’ rights in the scheme, may be attributable as some of the reasons retail greater number of retail investors still shun CIS.

Pointer to his emerged recently when, at a stakeholders’ meeting, it was disclosed that investment advisers and fund managers, may out of their own selfish interest and to the disadvantage of retail investors,

withheld vital education on investors rights from the investors, thereby perpetually keeping them in the dark on how the law protects them and their investments.

This state of affairs was reinforced by a retail investor, Mr. Chuka Nwaka, who told our correspondent that his dislike for collective investment scheme stems from lack of relationship between him and the fund managers or the investments advisers.

“The moment they collected my invested sum from me, we rarely communicates, no communication from the company and I don’t get paid or that I have not received any form of dividend from that my investment”

Mr. Nwaka said that he has never been invited for any form of shareholders meeting by the company or received correspondents from them updating him on the status of his investments, but still hopes that,

if the investment is not completely lost, one day, he would regain his investment sum and when the equities market bounces bank, buy shares of companies he knows are doing well.

Could it be that the investor mentioned above, has been duped by investment firm, or that he is the one that erred, by not following his investments.

Many investors in the Nigerian capital market may have been defrauded by their fund managers or investment advisers, but lack the enabling education on how to pursue remediation.

The Association of Investment Advisers and Portfolio Managers (1APM) in conjunction with the Association of Corporate and Individual Investment Advisers of Nigeria” brought to the fore, how best to treat a retail investor to sustain their confidence and market development, during a forum in Lagos.

Cross section of contributors argued that investment adviser and fund managers have failed to expose rights of investors to them, foreclosing any form of confrontation by the investor when their rights are infringed upon.

“Let us adopt another code for individual investors’ protection and let them know what their rights are” a stakeholder resonated.

Mrs. Olufunke Okoya, of coronation merchant bank, a council member of the Association said that the customer needs experienced and competent adviser adding that investment advisers and portfolio managers need to work together to deliver best value, rather than competition “the market is so large for all fund managers”

Okoya said that some in the course of competition, compromise investor’s funds by promising higher returns, embarking on high risk investment to deliver on promises.

“For instance promise of 40 per cent returns which other refuse to give, enables some to take higher risks and compromise investors funds”

Managing Director, Kings Thrones Limited, a SEC-registered independent Investment Advisory Firm. Akin Adeniyi, also a council member of the Association said that corporate governance aspect of the market still has a long way to go adding: are individual investors available to be protected”

He argued that though there is the asset managers’ code of conduct and retail investors’ code has remained unpopular, adding “Let us adopt another code for individual investors’ protection and let them know what their rights are”

Adeniyi emphasized that some of the investors are not made to understand their rights so that they don’t hold fund managers accountable when they fail.

Joe Mekilua, General Manager of the Central Securities Clearing Services (CSCS) called for asymmetry in investor complain framework, in order to deliver more value to investors.

He added that such ordinated approach on how to investors should deliver complaints seamlessly, holds the key to efficient market development through zero tolerance to breaches.

Bumi Taiwo Olagunju, who earlier in a statement presented on behalf of the guest speaker, said that the Nigerian capital market and regulators have implemented diversified policies aimed at protecting investors.

Some of such policies, she said include the implementation of the FIRS compliant reporting, a globally acceptable standard of reporting that thrives on full disclosure as it protects investors against financial crisis.

She added that the repeal of the universal banking law, by the Central bank of Nigeria (CBN) was also tied to the protection of investors, hence banks now concentrate on pure banking services, against the pervious practice of diverting investors funds into all forms of businesses that vie outside banking functions.

Olagunju reiterated that the introduction by the Financial Reporting Council of Nigeria (FRC) the now suspended code of corporate governance, had the utmost interest of protecting investors as its main objective,

by ensuring that listed companies remain resilient as going concern devoid of any form of unethical practices by its drivers .

“Market operators need to hold themselves to the highest level of corporate standard. Market operators, professional bodies need to attain best professional standard to in order to render the best professional services required of them”

She pointed that financial advisory intermediations, need to be carried out in pure professional manner, adding that doing otherwise would amount to rubbishing the high integrity of the Nigerian capital market.

The stakeholders were however of the consensus that self-regulatory organisations, such as the Nigerian Stock Exchange (NSE). The FMDQ. Among others.

Have critical roles to play in protecting investors, by ensuring operating standards that meet global best practices, in addition to ensuring sustained capacity building.

“Market infractions should be handled in pure transparent manner that meets global standards”

They urged the government backed regulatory agencies such as the Central Bank of Nigeria, the Securities and Exchange Commission (SEC), the Nigerian Pension Commission (Pencom) to align

and equally build internal capacity to ensure enthronement of world class sophistication of the Nigerian market, as well as building and sustaining modern technology in alignment with global standing.

Among the recommendations enunciated at the forum include, broad investment education which encompasses rights of investors and processes of reporting grievances in the market.

FIRS, and being proactive with implementation of such rules, where it is considered beneficial to the Nigerian market and IFRS

The stakeholders also called for the adoption of the Global Investment Performance Standard (GIPS).

The Global Investment Performance Standards (GIPS) is a set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients.

They also called for alignment with global reporting standards which include, BASEL11. Basel II is a second international banking regulatory accord that is based on three main pillars: minimal capital requirements, regulatory supervision and market discipline.

Minimal capital requirements play the most important role in Basel II and obligate banks to maintain minimum capital ratios of regulatory capital over risk-weighted assets.

Because banking regulations significantly varied among countries before the introduction of Basel accords, a unified framework of Basel I and, subsequently, Basel II helped countries alleviate anxiety over regulatory competitiveness and drastically different national capital requirements for banks.

The investment experts also called for full disclosures, adding “The Nigerian asset managers should be ranked among the top global organizations to comply with GIBS and support compliance with the code of corporate governance” hence the code provides assurance to investors.

They maintained that technology, upscaling market participation and enthroning ethical behavior remains key to market development, as sharp practices or weak regulatory agencies have no place in the new world investment order which the Nigerian market has ascribed to.

Investment expert, Michael Oyegbola, said that protection of investors should also be tied to giving accurate investment advice as well as matching investor’s risk profile through well trained investment advisers, taking into consideration that financial planning is key to right investing.

Bonny Amadi