BRIEFCASE: Investment advice rules questioned

IT was once said in New York that when the bell hops start giving share tips it’s time to sell. Australia has never had a bell-hop culture, but we certainly have taxi drivers and barbers. It was while considering the role of cabbies and hair clippers in the investment world that an entirely new thought occurred; who is actually allowed to give investment advice these days, and on what investment?

Stockbrokers are a primary source of advice, but have had their powers snipped by the national corporate regulator, ASIC. Gone are the days when a friendly broker would suggest a hot stock over a beer on Friday night. Now it’s a case of “know your product and know your client”.

Some brokers find this a bit stiff because what it means is that before giving advice a broker must undertake two forms of research. First, he must be able to demonstrate that he has researched the stock being recommended and secondly, he must ask the client about his appetite for risk.

But, if the brokers have been put on a tight leash what about other forms of investment and other people giving advice. Who, for example, is controlling what real estate agents say about the future course of residential property prices? And who is controlling what vested interests say about the future course of the gold price?

To support this theory that ASIC has only half done its job of tightening the rules about investment advice you must first accept that residential property and gold are treated by some people as investment mediums - Briefcase does not believe that this is too much of a stretch.

Then you have to consider what people on the inside are saying. Last week, for example, in the Subiaco Post newspaper, the president of the Real Estate Institute of WA, Greg Rossen, was quoted saying that the real estate market should experience the start of the next growth cycle late in 2005.

“A return to more normal market conditions is also likely to see the higher-priced localities like Perth’s western suburbs and the inner city suburbs, which have under-performed in recent years, regain their position as higher growth rate markets,” Rossen was quoted as saying. “Examples of under-performing areas include the suburbs of Claremont, Subiaco and Churchlands.”

Forgive Briefcase for interpreting but could this not be taken as a form of investment advice. Would a reasonable person not assume that the head of REIWA is saying that the western and inner suburbs have been duds lately, but they’re coming back - with the clear inference being that to buy now puts you at the start of the next upward price cycle.

Try and picture a stockbroker running a similar line on a sector of the stock market without demonstrating that he both knew the product and (this is key) also knew your investment requirements.

If property as an example doesn’t excite you, then how about gold. For this we turn to comments reported on the ABC by the chief executive of the Australian Gold Council, Tamara Gorrie, on January 11.

The dear old ABC, which struggles to reconcile its status as a government agency trying to cover the business world (which it hates with a vengeance), told its listeners that the gold council was confident that despite a poor start “the gold price can rise to the high levels it reached last year.”

Briefcase, when he heard these words, was fascinated. Here we had a direct “buy gold now” tip because on that day gold in London was fixed at $US422.55 an ounce, whereas the high last year was $US458/oz. A reasonable interpretation of the gold council’s advice would have been buy now ‘cos there’s a profit of $US35/oz waiting to be plucked.

In fact, Ms Gorrie didn’t say that. What she did say was: “But I think over the longer term all signs point to continued weakness in the US dollar and therefore I think over 2005 we can expected the gold price to remain very buoyant, somewhere between the $US430 to $US450 mark.”

It could be argued that no direct investment advice has been given, and everyone is entitled to their opinion. But, on the other hand, there is absolutely no doubt that gold is an investment product (has been for about 5,000 years) and here we have someone giving a future price tip.

Briefcase, to make its position clear, has no problem with Mr Rossen or Ms Gorrie telling the world what they think of future property and/or gold prices. But it reckons that ASIC has a problem in trying to write a set of investment advisory rules that hamstring one class of professional (stockbrokers) and let others in official positions talk up their product.

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NEXT month marks a milestone for Gina Rinehart. It will be exactly two years since the man in charge of her Hope Downs iron ore project excitedly told a conference in Perth that the project was soon to clear “the final hurdles”.

Those three words (the final hurdles) were, in fact, the sub-title to a paper presented on Hope Downs by Russell Tipper to the 6th annual Global Iron Ore & Steel Forecast Conference at the Sheraton Hotel.

Briefcase remembers the event well because Russell was full of confidence and Gina herself was in the audience and even spoke briefly to Briefcase. Well, she said “good morning”, which was the first quotable quote delivered directly by Gina in years.

Stoic silences aside, it strikes Briefcase that Hope Downs, rather than being poised to clear the final hurdles, might be in danger of suffering from an alternative cliché, “missing the boat”.

Haggling between Gina and Anglo American, the South African mining giant which thought it was to be her partner in Hope Downs, is now headed for the courts after Anglo rejected the results of an arbitrated decision that followed its acquisition of control of Kumba Resources.

The details of this imbroglio are too boring to be repeated, but the fact that the legal process continues begs the question about the title for this year’s paper from Hope Downs management at the 8th Iron Ore conference - perhaps “the final, final, hurdles”.

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“Artists hate the enlightened amateur, unless he buys.” Ernest Dimnett.