It is time to launch financial advisory services

Amid frequent once-in-a-lifetime global events, better use of money through investments became more challenging for the savers now as the Bangladesh capital market needs immediate launching of professional financial advisory services, said Md Nafeez Al Tarik, managing director of the Dhaka Bank Securities Ltd – a top brokerage firm in the country.

Nafeez Al Tarik, a chartered financial analyst and financial risk manager, said many savers, despite having no need for the short-term exit, are depositing their funds at banks for a low return only because they do not know how to invest in other financial assets like stocks, bonds, mutual funds.

The investment expert noted that the securities regulator should immediately respond to the situation by framing the regulations for professional financial advisory services and letting the eligible experts under their regulatory licence help people in the right investments for their financial well-being.

Around a decade ago, the Bangladesh Securities and Exchange Commission (BSEC) initiated two regulations – "Bangladesh Securities and Exchange Commission (Research Analysis) Rules" and "Investment Advisor Bidhimala". The first one was finalised based on which professional analysts are serving their clients with analysis reports, but the draft rule on investment advisory service was not passed by the regulator during that time.

Tarik in an interview with The Business Standard recently said that Bangladesh capital market nowadays is having some tradable bonds – treasury securities, corporate bonds and Sukuk – alongside efforts for floating more mutual funds, launching new products like exchange-traded funds and real-estate investment trusts.

All have their practical problems in terms of floating, operating, giving attractive returns to investors and very importantly, scalability to the public.

For instance, he suggested tax benefits on bond investors' interest income so that their effective return reaches a lucrative level.

He said financial advisors can attract many savers to put some of their money in market instruments as they have the literacy and experience of finding good investment opportunities, deciding the right product for an investor based on his or her financial profile and appetite.

Also in a particular situation, the better answer of too many important questions – such as how much of one's capital should be invested in which instrument, when to buy or when to sell or what to do in an unforeseen event – comes from experts, said Tarik who is also a reputed mentor in the Bangladesh capital market industry.

Bangladesh, like its peer economies, is suffering a balance of payment and exchange rate deterioration following the Russia-Ukraine conflict and the capital market is facing the war fallouts.

In hard times for equities, Tarik said, financially literate investors tend to reduce exposure in shares and increase in comparatively safer ones like bonds. But as the majority of the listed scrips are not being traded because of the unconventional price floor in the local bourses, the exit becomes impossible at the time when an investor needs it.

Tarik, who prefers value investment over speculation in markets, said investment success is subjected to a deeper analysis of the situation and factors.

For example, earnings per share that are widely followed by investors might appear misleading if a company depends too much on accrual parts of earnings and generates less cash flow in the business. Free cash flow per share and the return on investment are two important metrics over the earnings per share and earnings growth gauges.

A company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments. Even before looking at the financial metrics, an investor should look at the quality of the board and senior management and their professionalism to generate value for shareholders.

As psychology dominates over numbers in the stock market, short-term speculation might not need such analysis so rigorously since in the short-term the stock market behaves like a voting machine. But in the long term, it acts as a weighing machine as said by the father of value investment, Benjamin Graham.

If an investor wants to invest for retirement or a child's education, such analysis about the company's board, management, governance and in-depth financial analysis are crucial, he said.