National’s decision to support the NZ Superannuation Fund is long overdue.

While it could be construed as National running up the white flag on this issue, it is more a sign of pragmatism within the party.

National knew it couldn’t win a debate on this one and it has essentially decided to neutralise a potential conflict point during next year’s general election.

It’s also a sign that its finance spokesman John Key is getting some traction within the party.

Pre-funding is a sensible option. It is supported by the IMF and a growing number of countries are adopting this approach.

It’s interesting to note that recently Australia said it was going to set up a similar fund – The Future Fund – to partially prefund part of the state’s future pension liabilities.

What is interesting across the Tasman, besides having a far more imaginative name for their fund – is the fact that there is bi-partisan support on the concept from day one.

To me that shows a far more enlightened approach from their politicians than the petty approach which our representatives have shown to this topic over the years.

Perhaps the most interesting point of Brash’s speech was his comment that National would like the Retirement Commission to engage in a conversation with New Zealanders on the subject.

It seems to me that the commission has been doing a pretty good job on a very limited budget in this area over the years.

Perhaps what would be more useful is allowing the Commission to have a conversation with the government. Currently it has no official role into the policy making area, but in my view it should be a key player in helping shape policy in this crucial area.

I had to have a laugh the other day when someone pointed out to me that a crowd – albeit a small one – proposes to launch a business excellence award for financial planners.

They apparently have been bagging the Financial Planner of the Year Awards (which we organise through Good Returns) saying that they did this in the early 1990s but they couldn’t get it to work.

The Financial Planner of the Year Awards are the pre-eminent awards in New Zealand. They are a success and have great support, if they weren’t they would not have been going for six years and getting bigger and better each time.

Also they are endorsed by the Financial Planners and Insurance Advisers Association and the top award is for the CFP of the year. As readers will know the CFP is the top international designation for advisers.

When the awards were established we spent a lot of time looking at how other planning awards are run around the world, plus we looked at awards such as ones for bankers and accountants. A key point is that when someone seeks advice they are looking for a person who is qualified and with whom they can build a relationship.. Naturally a top planner will run a good business.

An investor picks an adviser on a personal basis – not on their business.

There is an old saying “imitation is the best form of flattery” and there has been a lot of that from this crowd in the past year or so.

An email I received on Friday seems to sum it up: ” You copy cat. Fancy taking one of Graham’s ideas that failed and making it work!!!”

First up Stobo. It’s been interesting to see the reaction of the media to the Stobo report – especially the Sunday papers.

Both Sunday papers ran coverage – one small piece penned by myself – and also Brian Gaynor hit it in the Herald.

The Sunday Star Times was particularly interesting as Rob Stock had a good crack at putting it into a practical sense. His fellow editor – Tim Hunter – showed he doesn’t get the idea of RFRM and consequently illustrates the system’s problem – it just isn’t sufficiently intuitiatve. It could be a hard sell, especially if it gets tagged as a “wealth tax”.

Being upfront here I have to declare I like the IST idea (which is a variant of RFRM), as it seems, assuming the rate is set appropriately, a good deal.

Why? I can pay less tax on my investments than I currently pay, plus because I know what my tax bill will be a year in advance, I can get it covered by putting a chunk of my portfolio into an income asset which will pay the bill.

For a business owner it is a little like putting aside some money to pay upcoming income tax bills.

So what if I have to pay tax when investments make a loss? I’ve structured my assets to minimise that happening. (If I can’t I’ll see an adviser).

Enquiries made by Good Returns say that the government will generate less revenue through RFRM/IST than the current system. That means we get to keep more of our money. What’s bad about that?

On the advisor regulation front it is interesting to read the FPIA Annual Report where the ceo Phillip Matthews (I note the SST made him a president in the paper today) outlined the association’s wishes for a self-regulatory regime.

The problem with SRO is illustrated in a story Good Returns will run this week where a group tries to self-regulate and discipline a member – it’s proving hard to do.

Tower’s annual result yesterday was an interesting affair as on the surface it looked like a good set of numbers. Digging into them though presented a different picture. As a result there has been some strong broker comment with one report criticising management for not sufficiently explaining the result.
“Unless management is more forthcoming at the briefing about (1) any other one-off reasons for the FY04 weakness and/or (2) the near-to-medium term earnings outlook, we see little in the result to alter our Underperform/ Sell call.”
The issue is that the operating earnings aren’t as strong as they appear, and the result is boosted by some revaulations and the like.
The performance of the New Zealand business is interesting. Risk has been going extremely well, and is likely to get another boost with the recent launch of its new 360 product. Investments are still struggling though.
Tower isn’t alone in this area – most fund managers it would seem are having a hard time of it. This is one of those topics which I’d like to explore in more detail later, and one I’d like to hear your views on. Why have funds flows been poor andlumpy this year?
The other point from the Tower media briefing was my question about what is happening with the appointment of a new boss for the recently combined NZ business?
Neither the head of the insurance business Paul Hunt nor the boss of the investment side, Paul Bevin, want the job.
Speculation has it Hunt is moving one, hence his appointment to the Adviser taskforce.
Tower boss Keith Taylor was a little cagey on this one saying no appointment would be made until next year and they are working on some issues – sounds like watch this space.

For the first time in more than a decade a long-held dream of the funds management and advisory community has finally looked like it may actually become a reality.
The dream has been that investors in managed funds are treated from a tax perspective at their own marginal tax rates, as opposed to been taxed – often at a higher rate – in a fund.
A report released today, which was penned by former BT Funds Management chief executive Craig Stobo, on the taxation of managed funds proposes (as Good Returns has been saying for a number of weeks) that foreign funds be taxed under a form of RFRM and local funds will be treated like bank deposits.
The upshot of this is that managed funds will be pretty much on par with other forms of investment.
Investors will be responsible for their own tax – rather than leaving it to fund managers.
In a funny way this is a Labour government telling its citizens to take responsibility for their own affairs – sure an oxymoron?
To me the report, which Finance Minister Michael Cullen seems warm on, achieves what organisations that preceded the ISI (the IFA and UTANZ) have fought for. It reminds me of people like Mark Pickering. Mark was a senior manager at Westpac and one of the people behind the formation of the ISI. He fought for this cause for years and has now left the industry.
I spoke to Craig this afternoon and he is clearly very pleased with the outcome and his contribution saying it is something he failed to achieve during his long tenure at BT and as a member of the ISI.
Although the story of his sudden and unexpected departure from BT has never been told, we may one day thank Westpac for its actions. Without them Craig probably wouldn’t have written this report.

Undoubtedly the big news this week is the release of the Stobo report in taxation. Followed by TOWER’s profit announcement.

All the chatter around the industry about the tax report is pretty positive and there have been plaudits for Craig Stobo. It appears he has consulted far and wide and done a good job at engaging the officials. My pick is that the outcome may look something like this. Offshore domiciled funds will be taxed under the Risk Free Rate of Return (RFRM) basis and locally based funds will come under a resident witholding tax type of regime. This (the latter bit) is very similar to how fixed interest investments are treated.

The key though is that capital gains tax on managed funds will go. Cullen has already made this point clear last week (story). Managed funds have been disadvantaged for years (even before Gareth Morgan started campaigning) because they have to pay CGT and no other investments have such a burden. Maybe we will see a change around in the fund flow numbers?

Some of the big issues will be explaining RFRM to investors. It’s not a highly intuitive system, but it is “simple” and gives people certainty about tax. The other plus is that people maybe come more likely to seek advice to help structure their investments.

The other big item this week is Tower’s result. Its shareprice contines to track upwards and the news coming out of the company has been positive. The latest item of course being named Fund Source Fund Manager of the Year

Yesterday I, along with a few other journos, had the pleasure of having lunch in Wellington with part of the AXA brains trust – Andy Penn and Ralph Stewart.
It was refreshing to hear Penn talk candidly about the industry and in many ways provide a fresh response to the criticisms made of fund managers and advisers by people such as Gareth Morgan.
His view is that part of the fee paid by consumers when they buy a product such as a managed fund is for helping advisers lift their game. This chunk of money is passed back to advisers by way of commission. It’s an interesting thought and quite a good one to ponder over.
Also it’s interesting to hear an Australian defend the onerous regulatory regime imposed on the financial services industry across the ditch. His view is “don’t blame the law writers blame the implementers” including the lawyers used by fund managers who naturally tend to be conservative.
When you think about this Australia isn’t alone. New Zealand lawyers have shown that they can be very conservative when they implement new laws. The example which springs to mind is the detail which included in the first investment statements issued in New Zealand. Some of them weren’t particularly simple.
One of the lasting impressions of Penn yesterday was his absolute commitment to helping raise the quality of advice given to clients.
Some good food for thought in what Penn had to say. If you have some comments feel free to post them using the box below this post.
Have a great day.
Philip

Hi All
Welcome to Phil’s Blog where we’ll talk about happenings in the financial services industry. For those of you who don’t know me I’m Philip Macalister the guy who set up Good Returns and Tarawera Publishing. I’ve been writing about the financial services industry since the 1980s and have a pretty good feel for what’s happening out there.
Right now there’s plenty of action and we’ll talk about it here. While Good Returns will bring you the news and happenings, Phil’s Blog will provide commentary and views.
While I’ll be writing this I’m keen for others to contribute. Please feel free to join in with the discussion.
Cheers
Philip