Raising professional, ethical standards of financial advisers
An investor at the Nairobi Securities Exchange. Financial advisers provide clients with specialist advice on how to manage their money or investments. PHOTO | FILE
When I got my first job over 10 years ago, I was very keen to invest and so I sought the services of a so-called personal finance advisor.
I was advised to begin by saving and thereafter invest the funds into some investment schemes that were run by the company the personal finance advisor worked for.
According to him, within three years I would make a very good return on my investment and so I followed his advice. Fast forward three years later and there were no returns of any kind.
It was a hustle getting back my initial investment which I finally managed to do after a long time. I faced the same challenge later when I was advised to invest in shares of various companies with a guarantee that I would make a certain return.
The shares did not gain any value and in fact lost value. From those two experiences, I lost faith in personal finance advice.
I managed to enrol in the CFA (Chartered Financial Analyst) course that opened my understanding to the world of finance and investments and this assisted me to manage my own personal finance without over relying on external advice.
The world of fixed income securities, derivatives, real estate investment trusts and other financial subjects were opened up to me.
But my best subject in the CFA course was on ethics and the code of conduct for persons in the industry. Perhaps I liked the subject because of my legal background as my other favourite subject was corporate governance.
When I was doing the course, there was no regulation of the sector in Kenya and perhaps many professionals got away with a lot of things.
With hindsight I think it was unethical for my personal finance adviser to tell me to invest in a certain stock with a promise of a fixed return, while I was not investing in a fixed income return stock.
The share market is volatile and one cannot really predict the return or give you assurance on the returns. What my personal adviser should have done was to make a recommendation rather than give me assurance of the return I would have made by investing in the said stock.
Financial analysts and investment advisers are now regulated by a new law, that is, Act number 13 of 2015. The Act sets up the Institute of Certified Investment and Financial Analysts.
Prior to this Act analysts and investment advisers were not regulated and belonged to non-governmental institutes such as the CFA Institute.
Many of these memberships were on a voluntary basis and the conduct of members was largely governed by rules and regulations of the member institutes. I believe that prior to this Act, the redress for aggrieved investors was under common law or contract law.
There was an element of misrepresentation in my second investment and I believe if I pursued the matter I would have had a good cause of action.
The new law sets up the institute and provides for examination of investment analysts and financial advisers. Nobody can carry out the practice without a licence. This therefore eliminates quacks and also encourages competition.
The institute is charged with promoting professional competence and ethical practices of its members. The fact that it is legislated means it is easier to deal with cases of unethical practices.
The institute also conducts research into the sector and advises the Capital Markets Authority on licensing of members.
To be a member one must have a certificate in finance and also that they meet the requirements of Chapter 6 of the Constitution. Membership is withdrawn if one is convicted of fraud or dishonesty or fails their annual ethics test.
This law is good for it will promote the standards in the sector and furthermore, it protects the public from unscrupulous people or those posing as financial advisers without the necessary qualifications.
