With the Budget everyone loves rushing out and giving their predictions on its quality, impact etc.

This year I’ve chosen to sit back and think about it some more rather issue a score straight away. One of the reasons is that often the first interpretations of Budgets are wrong and get changed as time goes on.

What has been an absolute surprise is how negative the reaction has been from the press (who apparently are all left-leaning, Labour lovers). It seems somewhere along the line (around about Labour “deep, dark secret” president Mike Williams) expectations were built up that this budget would have some meaty tax cuts. If that was so it would have been the killer punch for National.

But alas the tax cuts were pretty small – just think of those Freedom Air ads.

What’s been missed is that this budget presented some pretty significant changes in policy including actually giving money to Kiwis to help them save. This is a major change from the norm which is handing out money to the less-well off.

Likewise, as Colin James pointed out yesterday, United Future’s win in getting tax bracket thresholds changed is a significant change and future governments would be foolish to unwind them.

As for the winners in this budget it is without a doubt the financial services industry. Kiwi Saver is a good first step, more money is going into financial education and getting tax neutrality for managed funds is like winning Lotto. It’s odd then that champagne corks haven’t been popping.

Two interesting little bits on people news. The funny one is that financial planning’s number one enemy in New Zealand – Gareth Morgan – has been banged up by authorities in Iran. There is a great little story here.
Maybe he will return to NZ with some new ideas about what to do with errant advisers.
If you think the Iranians are tough on poor old Gareth spare a thought for how the Americans treat their people. AIA has, in New Zealand, been making great progress in the life insurance market over the past couple of years going from a small, niche player to one which is now the lead carrier for some risk advisers.
However the powers-that-be have declared that the company’s New Zealand operations haven’t been doing well enough. Consequently they have stood down the New Zealand boss Bernard McCrea.
We understand the place is being run by some guy from New York at the moment.

I don’t know but there are signs that the government may take a harder line to this issue than many are expecting.

The general view is that some tightening of rules around financial advisers isn’t a bad thing – after all there are essentially no rules in place. Anyone can hang up their shingle and call himself or herself an adviser.

The consensus view is that although things will get tougher – maybe some sort of registration system, a requirement for some form of education and continuing education and a decent complaints system – New Zealand won’t go as far as Australia and the United Kingdom.

However the government maybe thinking about something a little bit stronger. Admittedly this is reading the teleaves a little, but three announcements make me wonder.

The first is a speech that Finance Minister Michael Cullen made a couple of weeks ago. In summary he outlined what the government sees as the problems about financial advisers. (As an aside one could question some of the views he expressed and ask are there any facts to support the comments).

Then on Friday the government announced a review of the non-bank financial sector and the establishment of a code of practice for firms offering home equity release/ reverse annuity mortgages.

My observation is that these sorts of speeches and announcements illustrate that tougher rules around the financial sector are inevitable.

Added to this are this week’s budget. Workplace savings is expected to be a centrepiece. If the government is going to go down this track it will want to make sure there are sufficient rules around the sector.

A comment which has been made to me by a couple of high-profile people who have been involved in the process are that the government has already made up its mind on this issue, no matter what the taskforce comes up with.

The task force is expected to issue its options paper next week or the week after. It will be interesting to see the government’s reaction.

Two stories recently run on Good Returns aptly illustrate the life of a managed fund. The first is the story we ran a week ago about a fund manager who ventured off on his own to set up a fund under his own steam, the other is about a fund which got so big it had to change the rules it operated under.

The first is the story of the JB Were Emerging Leaders Trust which invested in small and mid cap ASX listed stocks. This fund was well-supported by advisers and investors as it had a clear focus and manager who got runs on the board. Because of its success it grew quickly and a decision was made a number of years ago to – quite rightly – close the fund to new investments.

There were concerns that the fund had got too big and the interests of the company became misaligned with that of the actual people running the fund.

Last year the manager – Steve Black – left Goldman Sachs JB Were and set up what he calls a Mark 2 version of the fund under the Pengana banner. A key characteristic of this fund is that it is capped and once it gets to a certain size no new money will be accepted.

Black says this means that he can stick to his investment style and deliver what he promises to investors. If a fund which specialises in small and mid-cap stocks gets too large it can lose the ability to deliver good returns.

The second story is the Fisher Funds one where the company has changed its mandate almost arbitrarily allowing it to invest in unlisted companies and Top 10 stocks.

It shows how fund managers can change their rules at whim to suit themselves.

I don’t doubt that the arguments put up by the company have some validity. What I question – and this has happened many times before – is that someone invests in a fund buying a certain “style”. Suddenly without warning the manager says, nope we don’t do it that way any more, we’re going to do it this way.

Many people are not impressed with the way it has been handled, and secondly the investor suddenly is owning something which they didn’t buy.

The manager can say well if you don’t like the changes vote with your feet and get out. That doesn’t sound like good customer service.

In some ways the change is Fisher Funds being a victim of its own success.

Fisher Funds has been successful raising money, and because it takes big bets in a smallish universe of funds, it was running into a problem of where to put investors money. (We wrote about this a while back).

The answer, in Fisher Funds’ view, was to broaden its mandate and go into two areas which can be hard to find value. The large cap end of town is so well-researched that big gains are hard to come by, and the unlisted end is the opposite. There is no research and the manager needs more resources to analyse opportunities.

My view is that if Fisher wanted to make these changes then they should have closed the current fund, keeping its mandate in place and started a new fund.