Predictions for 2012: financial advice

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What's in store for financial advisers this year?  Good Returns has compiled some expert predictions so you know what to look out for.

Monday, February 6th 2012, 7:19PM

by Niko Kloeten

There will be more Authorised Financial Advisers- the number of AFAs, currently under 2000, will increase this year according to Institute of Financial Advisers president Nigel Tate.

Originally there were forecast to be about 5000 AFAs but many have ended up in Qualifying Financial Entities (QFEs) instead, Tate said.

"If you look around at the number of advisers giving advice on investment products, it's about 5000."

However, he predicted a number of advisers currently operating under QFEs would end up striking out on their own as AFAs.

"Some of the advisers who went in under a QFE for the purposes of simplicity will realise there are some barbs on the hook."

Tate said another source of growth for AFA numbers this year would be from advisers who work towards becoming authorised while continuing in their current roles.

"Now the pressure is off them to do it by X/Y/Z date they can continue to operate as a non-authorised adviser or under a QFE, while carrying on doing what they need to do to become AFAs and go out on their own."

Professional development will be a focus

With the Financial Advisers Act now in full effect, professional development will be an important focus, according to Professional Advisers Association chief executive Edward Richards.

"My prediction is there will be ongoing interest in professional development and business education linked to the certificate in financial services level five, which will continue to have a high profile now we have occupational licensing in place.

"Advisers will need to focus on maintaining their professional development while maintaining their business - that's a prominent challenge but a positive challenge for advisers."

Richards said too much was sometimes made of the difference between Registered Financial Advisers (RFAs) and AFAs.

"It's more about the quality of professional advice you are giving whether you are authorised or not," he said.

"The spirit of the regulations apply whether you are an RFA or an AFA - you should treat the regulations as your friend."

Markets will continue to challenge

Volatile markets will continue to cause challenges this year, making good quality research essential, according to Goldridge Wealth Management chairman Bill Dahlberg.

"With markets being quite volatile in any given month getting a stable investment portfolio for your clients is important.  Most clients are probably more conservative than they were three years ago so you'll need to get good quality defensive assets."

Dahlberg said putting out good quality research was important for groups such as Goldridge, adding that some of the research put out previously by some of these groups "may or may not have been up to standard."

Having a "defendable position" will be crucial for advisers, he said.

"Advisers are not too sure whether clients are going to challenge returns, so you have to make sure you've got their risk profiles correct and have good research.

"When you're winning no-one asks questions of the coach - you only sack the coach when you are losing."

The little guys won't die out

Predictions of the demise of independent advisers are premature and likely unfounded, according to NZ Funds chief executive Richard James.

NZ Funds has its own advisory business, NZ Funds Private Wealth, and James said niche operators would continue to have a presence in the market, despite regulations increasing costs for these smaller businesses.

Since early on in the regulatory process there were concernsin some quarters that the regulations could favour the big banks and fund managers at the expense of independent advice.

But James said other heavily regulated industries such as law and medicine still had many small local practices that thrived.

"My observation would be that in a lot of other industries for many years there have been predictions of the demise of independently owned practitioners and it hasn't happened."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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