[Weekly wrap] Advice for advisers

Advisers got plenty of advice this week on everything from KiwiSaver distribution to product replacement, product recommendations and even the value of their businesses.

Friday, June 29th 2012, 10:00AM

by Niko Kloeten

One of the major stories of the week in adviser land was the Financial Markets Authority's release of draft guidance on KiwiSaver distribution, which a legal expert says could spark hot debate within the industry.

The FMA has taken a relatively strong initial stance, including its view that recommendations can be made by "implication", but it has shown previously that it is willing to listen to the views of industry participants, so it will be interesting to see what submissions are made on what is a contentious issue in the industry.

Speaking of contentious issues, the Institute of Financial Advisers has called for section 71 of the Financial Markets Conduct Bill to be scrapped. The section, first highlighted by Good Returns several weeks ago, restricts the ability of advisers to make "unsolicited offers" of financial products.

The IFA's call for it to be canned reflects considerable angst among advisers, who are scratching their heads over why another layer of regulation is needed when they already have the Financial Advisers Act. It does seem like bureaucratic overkill, and here's hoping the government sees sense on this one.

If all this is causing advisers to want to throw their hands up in the air and walk away from the industry they may be in luck, due to a sales drought that is pushing up prices for adviser businesses.

One of the consequences of the rush to the exits pre-regulation (which tends to happen in most industries when they become regulated) has been a subsequent drop in the number of advisers selling out. After all, why go through all the hassle and cost of complying under the new regime just to quit a year or so later?

There were a couple of stories regarding advice around insurance products this week, with one involving the FMA warning that cheapest doesn't necessarily mean best. In other words, when advisers talk to clients about switching products they must remember to account for the possible negatives and not just the positives (such as, "it's cheaper").

In a similar vein, advisers were also told that the "best" products aren't always the best in terms of individual client needs. The message: advisers can't just rely on research houses to make their recommendations for them. While directed at insurance products, the advice can also be applied to investment products.

And if advisers really want to go the extra mile with their customer service, knowing a few health statistics to rattle off could be useful.

In other news this week, the new Reserve Bank governor has been revealed. The government is resisting calls for this to be used as an opportunity to widen the bank's mandate to include other targets such as unemployment and GDP growth.

Meanwhile, March was a strong quarter for mortgage growth after December's dismal stats. And finally, a High Court judgment has seen nearly $900,000 in reparations from Nathans Finance directors go to receivers rather than investors. The receivers can use the money to fund further legal action against third parties to recover money for investors.

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

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