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Investment Advisors to Appear on Russian Stock Market

13.02.2014 16:55 / Interfax

Draft amendments to the Securities Market Act by the National Association of Stock Market Participants (NAUFOR) outline the business practices of investment consultants in Russia.

According to the amendments, consulting investors is reserved only for SRO member company or individual. The registrar of investment advisors is to be published on the SRO website. Advisors’ client liability is subject to mandatory insurance, in particular breach of investment consulting contract. Insured event is breach leading to client loss. Minimum insurance premium per contract is RUB 2mn.

NAUFOR Chairman Alexey Timofeev confirmed the document is authentic and that the association had forwarded the draft to the CB.

“The CB supports the establishment of investment advisors as an industry and considers this one of its KPIs. We will discuss regulation in detail, but generally our approaches and priorities are close”, says Timofeev. The CB declined comment.

“This is like financial advisors work in the West”, points out international financial consultant Isaac Becker. Foreign advisors are also insured against misguided decisions — for instance, if a client with conservative needs was advised high-risk investment. A client fee is taken, and if financial services provider commission accrues, the client must be notified by the advisor. Becker remembers how advisors used to be compensated mainly for selling financial service provides’ stock, not for drafting a financial plan: “This crippled advisors’ objectivity”. He says in many countries today, advisors earn from clients. Russia’s only difference from international practice is that in countries such as England advisors are licensed.

“Investment advisors regulation is long overdue”, claims Timofeev. Last year tax law was amended to stimulate private investors in the securities market. “We essentially invited people to the market. Individuals should have advisors to back them”, says Timofeev.

Today’s leading brokers offer investment advisory services, says Managing Director at Finam Management Alexander Gerchick. This service is popular with clients who are unwilling to use trust management, and yet are not ready to make their own decisions on the exchange. These clients open a special account with their broker and get advice on share trading, with each trade costing them 2-3 times more than for those who decide themselves, notes Gerchick. The investment advisors project lacks professional requirements, he says. “Brokers test employees themselves — what advice can a man from the street give?” wonders Gerchick.

Requirements, including education level, may be introduced in CB regulations. Also, SROs set member requirements and can set ones for investment advisors as well, counters Timofeev.

Yulia Orlova

Financial markets megaregulatorProject Group №1