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Investors have provided valuable insights about how they use the information that’s provided to them by companies offering investments.
The Financial Markets Authority (FMA) today published research showing that investors saw the Product Disclosure Statement (PDS) as an improvement on previous offer documents. Investors said that they find the PDS useful, however, even those who are experienced with investments struggle with some aspects of the document.
Garth Stanish, FMA Director of Capital Markets said, “The significant work issuers have put into PDS documents is paying off, with investors paying attention to the information. The PDS is a significant improvement to the previous disclosure regime and this research provides valuable insights from investors into how the PDS can be improved further.”
Investors told researchers that the PDS was the first thing they read when seriously considering an investment. They do not read the document cover to cover, instead reviewing the document to find the information they consider to be most valuable.
Investors also explained that they wanted to see more detailed information about the company and its management, especially about a company’s board of directors and senior management. Leadership was seen as particularly important for many investors.
One investor in a bond offer told researchers, “You can see who is what and what they bring to the table.”
While financial information was viewed as critical, many investors told the FMA this part of the PDS was overly complex rather than providing investors with useful information. One investor told researchers, “it gets a bit much after a while. I leave that to my broker.”
Investors also wanted the key risks section of the PDS to reflect risks that were unique to the offer and give explicit detail on how this may affect their investment returns. Investors suggested this would help companies be more self-aware and clear about their ability to deliver the returns they promise.
The FMA expects issuers to use the research to improve their disclosures.
Notes on the research:
The PDS replaced a prospectus and investment statement as part of the overhaul of financial markets regulation through the Financial Markets Conduct Act 2013. The FMA research into how investors are using the PDS was conducted by Colmar Brunton and was based on detailed interviews with 12 prudent, but non-expert investors based in either Auckland or Wellington and aged between 21 and 70. Those interviewed had invested in either an Initial Public Offer, a bond offer or a property syndicate.
Key findings from the research were tested with a wider sample of investors via an online survey distributed to the New Zealand Shareholder Association members. 89 members responded to the survey. In addition, the report quotes similar research conducted by the Australian Securities and Investment Commission (ASIC). All three pieces of research revealed the same high level findings.
For investors:
The FMA has prepared 5 tips for retail investors based on the findings of the research. That can be found here
Product disclosure statements: understanding investors’ information needs
