Last week’s Blog on changes to the advisory industry have certainly hit a strong vein of feeling with readers.
Many advisers have emailed or called commenting on the Blog – all supporting what it said. Following are just some of the comments:

Sanity at last
Thanks for the sanity. The only voices up until now we have been hearing from are those with a vested interest to drive panicking advisers into groups.

We’re not changing
It is good to see the likes of yourself standing up for the small guy/gal out there working hard and diligently and doing an excellent job in the insurance world. We happen to be part of that small group, just two of us, husband and wife advisers with a very strong business which has been very successful for more than 22 years.
We have experienced that bullying ourselves and refuse to believe we will be pushed out of the industry as the gossip goes. ‘Boutique’ style businesses can be extremely valuable to clients and often give better service than the glossy chrome and leather style organisations we socialise with.
We look forward to your ongoing support for the likes of ourselves and we intend to still be here in the same style and manner in another 10 years time.

It’s only discussion
I for one read your Blog with interest, having seen a number of articles of late “telling” me that my days as an independent are at best numbered. I would remind everyone that at this stage to the best of my knowledge NOTHING has been decided, we are at the discussion stage and therefore everything is conjecture based upon previous discussion documents and reports.
The media can add balance to this bullying/discussion by making sure an opposing argument gains equal notice.
Thankyou and regards

Small guys do it better
The results I see from those advisors aligned to major groups are disgraceful compared what our non-aligned company has achieved for its clients over the last 12 months and last five years.
It seems to me these advisers do not have the interests of the client at the forefront and deserve the criticism that is levelled at the industry by the likes of Brent Sheather and Gareth Morgan.
Advisers should be asking their product suppliers why is it that a little company like ours produced balanced portfolio returns close to 30% for the last financial year while you, Mr Suppliers, with all your financial resources, have only averaged half that figure?

Been there done that; Not again
Good to hear your views – particularly as I agree with them.
I have had plenty of group experience – I started in the industry with IPD Securities in 1993 before moving on to Broadbase Otago for 4 years, then Reeves Moses in Napier for 3 years – before going out on my own in 2003. I am a more effective adviser now and, from the feedback I get, my clients are well satisfied. Groups tend to emphasise new business rather than looking after existing clients and if you aren’t getting at least x new clients every y period you aren’t doing ok. Processes get ‘dumbed down’ to suit the lowest common denominator and portfolio returns become secondary. Some advisors hide behind the brand and believe they aren’t accountable for their actions and decisions. The MortgageCare debacle at Reeves Moses showed the ugly side of the industry and is something I personally wouldn’t like to see again.
While there are high profile individuals like Gareth Morgan and Murray Weatherston out there on their own, and organisations like SIFA, I trust that the option will continue to be available for those of us who choose not to join a group.

No intention of plugging into network
Couldn’t agree more about some larger players threatening smaller advisory firms over the impending regulatory changes.
We have absolutely no intention whatsoever of joining a network. We are a two-person practice with efficient systems and a very loyal client base. As long as we are financially able to deal with the new requirements, and we have yet to see any authoritative statement that says this wont be possible, then we will do whatever it is that we have to do to stay in business, and simply press on with a minimum of fuss.
The time to reconsider our position will come AFTER the dust has settled and we know exactly what we are dealing with.
I know of one large player who has been threatening smaller firms, on the basis that if you don’t join them you will not comply with “best practice”. Trouble is, no one can adequately describe what best practice is, or whether this firm’s best practice is a better best practice than someone else’s best practice.

And finally!
Thanks Phil
You are a man of integrity and courage.

Quite often I am asked for my view on the future of the financial advisory industry in New Zealand. My view, which I am happy to explain to anyone who asks (and it reiterates what I have put on record before), is that the future will be quite different to Australia.

New Zealand will not adopt a model where all advisory businesses have to be part of a network or dealer group.

The task force in its papers made it very clear that it did not to see New Zealand dominated by a dealer group environment.
It went onto say that the structure of the New Zealand market where there are many small advisory firms doing a good job servicing the public is something it didn’t want to see disappear.

Yes there are a number of industry players suggesting the end of the small firm is nigh. A number of firms that make these comments are related.

While the following comments may not win any friends in those quarters it has to be said.

My key point is that bullying advisors to join networks is poor form. I know there are advisory firms that have cooled relationships towards firms that take a heavy-handed approach to the impending changes.

To say get in to a network now or you will enjoy “lower status” if you come in later is tantamount to threats.

To say that selling now will get an adviser a better price for their business than later when there is a glut of advisory firms for sale and supply will exceed demand has little basis of fact. The price of a business is not determined by supply and demand alone.

This topic has come up before. I recall former FPIA chief executive Phillip Matthews publicly disagreeing with a bank that thought regulation was good as it would make advisers join networks.

It is the media’s role to report what others are saying. We, and others, report what senior industry figures say. To describe reporting as media commentary is misleading and disingenuous.

I am not saying networks don’t work or they are bad. For many firms they are a good outcome and there is a place for them. But there is also a strong place for the small one or two-man advisory businesses.

The media can get criticised for reporting one side of the story. But that camp has successfully endeavored to tell its story while the opposing camp have been quiet.

As usual I leave you with my invitation….if you would like to comment on this Blog send an email to blog@goodreturns.co.nz

We have had quite a few emails this week about the proposed tax changes to investments. The following is a sample of what people are saying.

Jim Minto at Tower is supportive of the changes:
Back in 1987 I attended a unit trust conference in Auckland which filled a hotel ballroom and I believe was attended by close to 800 people.
The BNZ Unit Trust Group was launched there amid much hope for an industry that would grow along the lines of international parallels in managed investment. 2005 saw the BNZ decide to exit the manufacturing of this product. In Australia its parent NAB is a market leader in this area.
Other companies are either disinvesting quietly or removing focus from this area.
In the last 10 years the Australian industry has quadrupled in size whereas New Zealand has grown by 11% absolute over the whole period based on figures I have seen. Net of investment returns there has been major shrinkage.
My point is this industry has stagnated around the participants and one of the key reasons has been the tax inefficiency of funds. The industry has suffered tax disadvantages against other forms of direct investment in New Zealand and offshore.
The industry needs a level playing field and these changes create that level playing field particularly for Australasian investment. I support that.
The government has moved to fix a longstanding problem and this will benefit investors. The government deserves credit for that.
The past offshore tax treatment of investment has been extremely complex with many gaps. The solution announced is not to everyone’s satisfaction. Yes there are shortcomings but the industry has had an opportunity to lobby.
Most of this industry is owned by Australian institutions and I know the parent organisations will be embracing this announcement with enthusiasm.
My view is the industry should take this as an opportunity and move forward.

Novel approach to tax
Phil agree re skewing investment to approx 2% of world’s capital markets does nothing for normal portfolio diversification and hence raises New Zealand investors’ portfolio risk for no good apparent reason.
Also the concept of taxing unrealised capital gains is a novel approach not found in more sophisticated tax jurisdictions which really understand the need to lift savings rates.
This is a fairly blunt tool to encourage investment in local markets as opposed to looking at reasons investors prefer offshore investments versus our own market.

Use UK model
Well, well here we go again. You save hard to set yourself up for the future and guess what you get pinged! Another reason to think about whether New Zealand is the right place going forward- we are from the UK and have been here nine years.
I can see accountants getting wealthier, why don’t they just use the UK CGT model. It is a hell of a sight easier and fairer.

NZ rest home for world
As always with this government, it takes from the sensible people who do save and pay their debts and don’t overspend. Its so-called needs to save the “ordinary hardworking people” from themselves.
As I see it if you are a hardworking, ordinary middle-class person than you want to and will look after yourself and would prefer to do so with the money you make.
Who gives them the right to take and give my money to people who do not look after themselves or are stupid enough to spend what they don’t have?
To punish people who are smart enough to invest and save is just plain stupid. What will happen is that the money will go out of New Zealand and New Zealand will be just another state of Australia.
Propping up the New Zealand money market artificially will only lead to more problems.
The socialist principles have never worked worldwide and do not guarantee a better life for people who want to achieve on their own merits.
More people will look at their future will leave and the people coming to New Zealand are the ones who cannot make in the world on their own or come here for a “retirement” lifestyle and do not contribute to the growth of the country.
Only a healthy competitive business will increase the wealth of the country and can compete on the world market.

As usual I welcome any comments. Please send them to blog@goodreturns.co.nz

As promised the government has outlined its tax plans before Easter. This is potentially some of the biggest news for the savings industry this year.

What’s my initial take on it? Well first up there has been little change since the discussion document that was released in December. Good Returns signaled that was the case a couple of weeks ago.

The key changes are that Australian investments will be treated under the flow through regime, just like New Zealand ones. Also the superannuation lobby has a win in that the highest tax rate on QCIVs is 33% – this may help alleviate the government’s so called Extreme Salary Sacrifice problem.

The biggest issue is not the one that will get the most airplay in the mainstream media. No doubt they will babble on about the CV tax regime being a capital gains tax and New Zealand is not meant to have one of those.

What is the big change is that portfolios will end up being skewed towards investments in Australia and New Zealand.
Preliminary numbers I have heard are that international investments will have to have returns somewhere around 30% higher than Australasian investments just to be on par on an after tax basis.

While the government is not prepared to admit as much these changes are about propping up the local market. It is saying that New Zealand’s capital markets are so sick they need massive support.

Amongst the losers are advisers and their clients. As one government press release says: “The losers in this case will tend to be sophisticated direct investors who have enjoyed considerable tax advantages under the old regime and who have the ability to easily adjust their investment arrangements.”

These are the people who have used professional advice.

Changes I predict are that now direct New Zealand shares have lost their advantages over managed funds, brokers will be rolling out Australasian share funds – this has already started.

Fund managers will work hard to find ways around these changes so that they can invest offshore without being penalized. (The winners of course being lawyers and accountants).

Early reaction from fund managers isn’t too flash. One manager spoken to says it is “unbelievable” what they are about to introduce.
“(Officials) are so far into the woods that they have lost sight of the sky.”

As usual I welcome any comments. Please send them to blog@goodreturns.co.nz

In the March issue of ASSET we profiled the departure of Paul Fyfe from the helm of ING. Our reasoning was that this was in many ways the last of the old guard leaving our industry. (I guess a little debatable in retrospect as Jim Minto, for one, is part of the old guard). It was certainly the exit of one of the bigger personalities of the industry.

With Fyfe’s departure, I predict, we will now see many changes at ING.

There is some talk that under its new stewardship the company will become much more focused on insurance at the expense of investments. While it is too early to say I have found it fascinating how many people have made this comment to me. Maybe it is more perception than reality? Time will tell.

One thing which is changing is that the business is moving from being run by a personality to an organisation that has a corporate culture or company image. (Hopefully you know what I mean!)

Here’s an example. In the past ING was always associated with being a major supporter of a compulsory savings environment – I couldn’t count how many times Fyfe went on record with this and how many press releases went out with him saying it.

But just last week ING’s chief investment officer Rebecca Thomas stood up in front of an audience and said compulsory super won’t work in New Zealand.

That is a pretty big change and illustrates the shift in power well.

What will also be interesting is to see how the personnel in the organisation changes. ING has undoubtedly had a stable, long-serving senior management team. My observation over the years is that when there are changes at the top there are often people changes throughout the company.

As usual I welcome any comments. Please send them to blog@goodreturns.co.nz