One of the things which holds back the financial advisory industry is that it’s nearly impossible for a client to get redress if they are given bum advice.

Comments made by financial adviser Murray Weatherston at the recent SIFA Conference, and the release of the Banking Ombudsman’s report illustrate the issue well.

Weatherston’s view is that most people are wasting their time trying to seek redress because the cost of a claim is enormous.

He is well placed to comment, as he has been involved in most of the cases that have come up over the past couple of years.

He tells a story of an investor who spent $100,000 on legal fees looking into taking a case. What’s scary is this person didn’t pursue the matter because it was too hard and the likelihood of success too low. And they are now an extra $100K out of pocket.

When you hear stories like this the proposal to have an ombudsman scheme for the advisory industry is thrown into stark relief.

It’s something we first advocated in ASSET magazine three years ago – and in my view it can’t come soon enough.

We already have two ombudsmen schemes running – surely it can’t be that hard to get one of them to take on hearings for financial planning?

The group with the biggest advantage in the financial planning industry is the one many independent financial advisers and fund managers see as their big threat – banks.

Bank advisers come under the Banking Ombudsman jurisdiction so their clients do have some form of redress.

Having redress throws up some interesting issues, which you can get a feel for from the ombudsman’s recently released annual report and case studies.

First up clients will use the scheme to have a go at advisers if they have lost money, even if the advice was OK.

Secondly often the ombudsman orders the banks to make a payment to the client. In one case study a bank paid back a $3,000 entry fee and in another a bank had to make a payment equivalent to one half of the capital loss suffered by the client.

The question to consider is this: How will advisers not part of big, well-resourced dealer groups deal with these sort of payments if they are forced to make them?

One thing I try to do is a bit of cycling – while not the fastest on two wheels it’s good to get on the road.

Many others in the financial services industry seem to get into cycling too – including Burton Shipley at ASB.

I ran into Burton (but not on his bike) in Rotorua the weekend before last as we both did the annual Bike the Lake event where you can ride around Lake Rotorua twice (84kms). This is starting to be used as a build up to the 160km round Lake Taupo ride in the last weekend of November.

Burton is training for Taupo and is also using it as a fund-raiser to help Heart Children, an organisation which assists kids born with congenital heart problems.

His aim is to raise $10k for the Heart Children.

As someone who has used Heart Children I am only to keen to encourage you to support Burton in his fundraiser. Heart Children is a great cause.

So far Burton is up to $8,320. Let’s help him get to the $10k mark.

You can make a donation here. Go to www.fundraisingonline.co.nz/burtonshipley and support the cause.

One thing I won’t miss about Rod Donald is his carping on about investing in international markets being like gambling on the casino economies of the world.

Like the majority of New Zealanders Rod’s passing stunned me.

Many of the zillions of obits to Rod have expressed similiar sentiments which, although I agree with, I won’t repeat.
To me his passing has many other dimensions.

While the Greens are closely tied to environmental and social issues, Rod was also highly interested in savings.
I haven’t always agreed with his comments – such as the casino one – and I have publicly criticised him strongly for some of his utterings.

However, it is imperative to record his interest in savings areas and the fact that Rod was one of the few minor party politicians who would research a savings topic, form a view then present it.

He deserves huge credit for his interest and input into savings issues.

I disagreed with his idea of capital gains tax on residential property.

A couple of days ago National’s John Key put out a statement saying Michael Cullen wanted a capital gains tax on property.
Key manufactured a story with zero attention to fact. He demonstrated one of the worst instances of a journalist interviewing his typewriter.

Rod would argue this case on facts – this is miles ahead of Key’s approach.

Rod was always accessible to the media. I recall sometime many years ago calling him one evening to discuss something. He was reading a bedtime story to one of his daughters and asked to finish it then call me back.

It is a measure of a man who knew the importance of the media, but also that family came first.

I mourn our loss of Rod as he was a friend of the planet and someone who stood staunchly for his beliefs.

But I will also miss his input into our industry.

Everyone has had something to say on Alan Bollard’s recent speeches – but here is a new angle.

First up, it has been a common criticism over the years that the OCR and the Policy Targets Agreement the Reserve Bank has to run the economy are pretty crude.

Well it seems like things have gotten even crudier – besides the OCR club there is now the guv’s jawbone. Hardly inspiring stuff for managing a modern economy.

I doubt anyone is going to curb their spending just because Bollard has asked them to. The other crazy thing is that all the OCR increases do is push up the floating rate home loan rates, yet no one is borrowing money on variable rates – it’s mainly fixed rate lending in the country and has been for some time.

As others as noted his speeches sound a little like panic.

Bollard’s comments about the Australian-owned banks, their alleged profiteering and their cheap home loans have missed out one important point.

The bank which has been arguably the most aggressive in terms of pricing has been none other than the government-owned Kiwibank.
Within Good Returns we have the most comprehensive and user-friendly home loan rate available to the public. Within the section you can compare historical rates from lending organisations and plot graphs.

The following two demonstrate that over the past couple of months Kiwibank has been the most aggressive in terms of pricing.

You can compare rates at Good Returns here

When I started reading FundSource’s funds flow information for the September quarter, I thought, OK this ain’t bad. New record high, but some worries about investment decisions.

None of these are new – money moving from funds to finance companies, people exiting international shares.
However when you get to the numbers it’s sad reading. In the year more than $800 million has left funds, add in the previous year and the number is over a billion dollars.

These outflows are at a time when markets have been performing well and some excellent returns have been recorded.
Funds flow figures are made up of two parts, market movements and investor applications and redemptions.

If it hadn’t been for the market doing so well, reaching this new record high of FUM would look like the summit of Mt Everest from base camp – daunting. We would never have got close.

I can understand the appeal of finance companies and some investment into debentures and the like is fine – as long as it is done properly.

One thing which is a concern is that I have seen some evidence there is a clear divide in the market between advisers – one group uses finance companies for their fixed interest exposure and another group uses more liquid and higher grade listed debt and corporate debt instruments.

Surely there shouldn’t be two camps?

I can’t understand the desire to move out of international equities. While I am not a highly-paid economic analyst, logic seems to say international looks good as the New Zealand economy is slowing and there must be some currency kicker somewhere along the track. The NZD can’t stay this high forever.

In other markets like fixed interest and New Zealand shares investors have a number of options other than managed funds, but with the latter it seems funds are the best way to gain exposure.

Is anyone concerned about what is happening?
I am.