For two days during this past week I have chaired the annual Super Summit that looks at superannuation issues.

One of the benefits of chairing this conference over the years is that it provides a good reality check on superannuation and what current thinking is.

Not unsurprisingly the two big issues were KiwiSaver and tax.

KiwiSaver, as a policy, was roundly condemned by many people, including one large fund manager. There was agreement that it wouldn’t do anything to increase the nation’s savings rate – it could even make it worse.

However, once that was off a few people’s chests, they then acknowledged they had to get on and work with it.
This situation is best summed up by Michael Littlewood – KiwiSaver is a daft policy, he says, however it is great for his superannuation administration business.

We’ve always known the implementation times to get the scheme up and running by April 1 next year were tight, but let me assure you – after listening to the players speaking – it is no understatement to call it impossibly tight.

Compounding the issue is tax changes. Many a speaker made it clear that tax changes needed to be in place by April 1 to make KiwiSaver work. As Good Returns reported yesterday managers have about three months from the time the bill is signed into law until start date. Considering these changes require major systems overhauls and further data collection from investors it is another huge undertaking.

Sticking with tax it was useful to have the Minister of Revenue Peter Dunne speak, however it was unfortunate his office would not allow him to take questions on the subject. On the plus IRD policy adviser David Carrigan gave some great insight into the department’s thinking.
While he addressed only aspects of the discussion paper released last year, as opposed to what is in the paper currently before Cabinet, one would assume the things he talked about were relevant to the Cabinet paper.

Using such logic, which always is a risk, means that Australian investments will be taxed on a flow through basis just like New Zealand ones, Australian franking credits will continue to be of little use to New Zealand investors, and other international investments will be taxed using the comparative value method.

With such a short timeframe to get ready for KiwiSaver and tax changes don’t be surprised if managers distracted from their day-to-day business and the first day of the new regime is a mess.

One countervailing factor is that a number of people across the spectrum acknowledge that government departments such as IRD and the Ministry of Economic Development have been excellent to deal with.

Business New Zealand chief executive Phil O’Rielly, somewhat reluctantly noted these comments about IRD: “It pains me to say this… but I know of no other piece of legislation that has had such good consultation process as KiwiSaver.”

I wanted to recount a discussion I had the other day with an adviser – or to be more correct someone who has been an adviser – but is still involved in the industry.

He was characterising advisers as people who wanted to get out from the corporate rat race, be entrepreneurial and establish their own businesses. While paper-work is important, advisers can’t generally be described as a bunch of pen pushers.

Rather it seems the pen pushers are in Wellington and they are busy drawing up ideas to stifle the spirit of the advisory industry.

At first they put out a document on adviser regulation which went further than what the Task Force did, and even argued there was a big problem with shonky advice and poor practices in the industry.

That’s not what the Task Force said and we are still waiting to see the evidence that can support the comments made in the Cabinet Paper on the issue.

Now we have another discussion document from the Ministry of Economic Development that wants even more regulation.

It seems this thing is getting a little out of control and the industry has to step up to the plate and bat big time for advisers. We need a few home runs quickly. Is it possible or are we going to mirror our Commonwealth Games effort – not a bad result, but not as good as we wanted?

Or will the advisers end up being tarred with the Morganesque brush “they’re all corrupt commission salesmen” label?

Please send your thoughts on this Blog to Phil

I had the pleasure yesterday of attending the release of the ANZ/Retirement Commission study in adult financial knowledge in New Zealand.

The commission and the bank need to be applauded for this piece of work. It is a very valuable document.

My take on the topic is that it is a bit like this argument we hear about broadband. The point being that affordable and fast broadband is essential for this country’s economic development.

I believe financial literacy is also crucial for New Zealand’s economic development and the growth of the savings pool.

The survey is pivotal in highlighting gaps in people’s financial knowledge. Most surprising – and we will write about this next week – is the lack of understanding by pensioners of New Zealand superannuation.

Likewise the other big surprise is that mortgages are a riddle to many – this is more worrying considering the huge growth experienced in this area over recent years.

It was pleasant to see – as today’s story shows – that people who get advice are pretty happy with the outcome. Hopefully officials working on adviser regulation, who seem to think otherwise, will note this.

I have been a big protagonist of improving financial literacy and am an advocate for getting it included into the school curriculum.

The survey gives us a good reason why this should happen. As Retirement Commission Diana Crossan rightly points out there is a strong correlation between financial knowledge and socio-economic status. If people want to improve their position in life (sounds dreadfully English that phrase) they need to have good financial knowledge.

This survey helps identify areas we need to work on.

Please send your thoughts on this Blog to Phil

What’s triggered the latest comments that it is talking to the Professional Advisers Association?

It says it’s “at the preliminary stages of exploring how the two organisations might cooperate to further the representation of life insurance advisers.”

This statement doesn’t say that they are talking about a merger – although that is the immediate conclusion some draw.

For some time now it has been clear that the current leadership of the FPIA has a game plan it is working to which as all about trying to pull all the associations together.

Where this mandate comes from I am not sure.

A fair bet is that the comments yesterday are a kite-flying exercise to gauge the reaction of its members. After all the associations have been talking for some time – see this story.

It’s hard to know whether there will be much response as there is very little detail to go on. (But if you have a comment email them to me).

Last time such a merger exercise took place (the creation of the FPIA by putting together the IAFP and IIAA) there was much acrimony and bitterness, partly because the two groups had reasonable profiles. The PAA, doesn’t have the same level of profile as the IIAA and I would wager many FPIA members know little about it.

It’s hard to focus on the opposition when you can’t see them.

And if you go back to that comment “further representation of life insurance advisers” that could mean that the PAA and FPIA take a collegial approach on life issues.

Another idea worth considering is that the FPIA could keep its financial planning college and shift all its life insurance college members to the PAA.

There is some logic in this idea as it still seems – after all these years – there is some friction between the two camps.

Having separate associations representing the each of the personal finance disciplines (financial planning, mortgages, life insurance etc) isn’t an idea that should be discarded outright.

Please send your thoughts on this Blog to Phil

A few weeks ago we ran an NZPA story about AMP closing up funds. If you didn’t read it you should. While it may have failed to express things the way AMP wanted, it provides a glimpse into what’s happening in the market place at the moment.

The thrust of the yarn was that AMP’s focus was on workplace super (which will include KiwiSaver) and life insurance. It then gave the impression that it was getting out of managed funds.

This isn’t exactly true (KiwiSaver is managed funds), rather it is more about rationalising its fund range and closing old, crappy products. AMP has to be applauded for this and others could take a leaf out of its book.

One of my bugbears with this industry is how managers keep unprofitable, inefficient small funds alive.

Have the guts to kill ‘em, I say.

There is another trend which the story highlights. It is interesting is that there seems to be a bunch of firms which are shifting their focus to life insurance and KiwiSaver and that the managed fund world may become something for specialists.

Supporting this view is the talk of one large manager possibly selling up, another (which has been a strong investment player) becoming more of a life business, another going wholesale/mez only and other similar observations. (You can fill in the names, I’m not going to right now).

It’s something which I will be watching carefully and no doubt commenting more on in the future.

Please send your thoughts on this Blog to Phil

COMMENTS
There have been some interesting comments at the moment ranging to this one – rather funny I thought to more serious ones such as the Nationalisation of the funds management industry.

Government should immediately name a high-level task force to inquire into the closure of New Zealand funds. An early outcome should be a process of consultation, determining the optimal number of funds Kiwi investors should have available for their savings. The opportunity to input in the process should be available to all industry participants.

Simultaneous regulation should be introduced ensuring all New Zealand managed funds are of a high average standard, safeguarding the hard-earned wealth of Kiwi workers. [Late Note - Insert: "The range must include appropriate not-for-profit funds and allocation to SRI"] . It may be that subsidies, or tax concessions, will be available for Qualifying Approved Managed Funds (“QAMF’s”).

At the same time, experts at The Inland Retinue Department (“TIRD”) should be tasked with tackling the cause. A new regime should be drafted limiting the volatility of underlying. A scale of surcharges will be imposed on excessive gains. The new programme will be administered by the IRD using it’s existing resources.

Anon

The Nationalisation of the Funds Management Industry

We all know that the ridiculous tax position of managed funds has held back the industry for years, albeit that is about to change, but too little too late.

We also know that the voluntary saving structure (which I support), meaning an absence of incentive or compulsion for saving, has also meant that fund managers have not had an easy ride. It also means that fund managers have probably failed to meet the challenge.

However, the final straw leading to further withdrawal from retail fund management services is probably Kiwisaver. Think of it like this.

The government undertakes standard funds management through ACC, Earthquake Commission, National Provident Fund, Government Superannuation Fund, the NZ Superannuation (Cullen) Fund and now Kiwisaver. Why would a fund manager bother competing, when they can simply offer management services to these funds at a wholesale level? Even NZX is in on the act, offering passive management to the government funds.

The evidence is in, not only with fund managers providing management services to the government funds, but with many former high flyers in funds management such as Bevin and Dyer, being employed direct by the government funds.

Enough said. Saving via managed funds has just about been nationalised, also meaning, of course, that many of the underlying investments also have significant government ownership. Interesting!!

Name supplied

Well the headline of our story this week said no they don’t. Apparently the finance minister’s press secretary didn’t agree with that comment. So what’s the answer?

My view is that yes there is a role for advisers in the process. It’s a role which is a little different to what advisers do now. Since there will be little fat in the set up for decent commissions, advisers can sell their services to employers to help them select and run superannuation schemes for their employees.

Under this model advisers will charge a fee for service. If this happens it will encourage financial planners to shift from a commission remuneration model to a fee for service one.

The idea expressed here is along the lines of what some insurers do in the group life market. The people who do this are big writers and have significant businesses.

Another way of looking at KiwiSaver is that it is a competitor to independent financial advisers. Maybe another approach should be to use the promotion of KiwiSaver and the general awareness of the need to save as a prospecting tool to your advantage.
Your offering as an adviser is to say you have a better proposition than KiwiSaver and the employee should be your client – not of the state sanctioned schemes.

For more on this read Russell Hutchinson’s column in the latest ASSET Magazine. If you’re not an ASSET subscriber click here.

Over the past few days a number of people have noted my appearance in the most recent Sunday Star Times. Appearing in the paper is nothing new, but getting so much feedback was.

When the paper landed on my desk yesterday I can see why! What a shocking photo. No idea where or when it was taken and checked the mirror to see if that was really me.

Well yes, I can confirm a positive identification once the extraneous facial hair was removed.

Just goes to show that it’s all about presentation and looks. Bit like a good meal.

As they say it’s not what it tastes like it’s what it looks like. Trouble is in this case it was more like a burnt offering a la Cajun cooking. Looked awful on the outside, but tasted beaut!