The more these new tax plans for investments develop the worse they look.

As I said before IRD officials have worked hard on these proposals and have come up with something they believe is an appropriate solution to the so-called “problem”.

The new problem is that the proposals are now in the political process and Tuesday’s session in Parliament showed the risks.
National Party finance spokesman John Key asked whether anyone other than GPG was going to get special treatment under the rules.

Specifically he was thinking about UK listed investment trusts.

The following is what was said in the House according to Hansard:

John Key: Will the Government cave in to any other companies if they too start to take out full-page ads in the newspaper, and in that case, which companies?

Michael Cullen: No. I see suggestions are made that those who set up UK investment trusts should have some kind of transitional exemption. Those trusts are set up deliberately as avoidance mechanisms using the grey list.

Cullen is wrong, wrong, wrong. Many UK listed investment trusts like Foreign and Colonial have been around for more than a century.

They are a bonafide investment structure both in the UK and New Zealand. They are another form of legitimate managed fund but with a number of differences to the traditional NZ-domiciled fund.

Comments like this from senior politicians worry me as it suggests they don’t understand or know enough about the savings world. If they don’t know then they can’t be expected to make sensible decisions.

PS: It is interesting to see the Sunday Star Times has picked up on this too. See it’s piece: Investors spitting tax over trusts here

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

It’s becoming clear that the government’s new bill on taxing investments is going to be a shambles and the outcome is likely to, therefore, be a mess.

The government yesterday caved into expensive lobbying by GPG and has given that company a five year holiday from the rules.
The move is stupid. It goes against the principles of what these changes are about – treating different types of investment vehicles equally.

Now a breach has been made in the dam by GPG we need to rally together and get other holidays and exemptions.
Full marks to the promotors of UK-listed investment trusts for efforts to put some concerted effort on the government for a class exemption for these types of vehicles. I bet collectively there are more New Zealanders invested in UK trusts, than in GPG, and the amount invested would be higher.

Let’s hope they form some sort of coalition and fight the government.

The next to step up to the plate should be Australian managed funds. Why should ASX-listed investments be treated the same way as New Zealand domiciled investments but unlisted investments be treated under the international rules?
There is no logic.

It was interesting to watch an IRD official give a presentation on the tax changes the other day. While people may not agree with what is being proposed you have to feel for the officials.

They have worked hard to create something which they believe is better than the existing rules and is also in the national interest. Also they have done an excellent job consulting with the industry on the proposals.

Two comments that struck me were, that the bill would be introduced to Parliament on Tuesday “unless they chickened out”. Turns out the bill was a day late, and the first change was made an hour after it was introduced.

Secondly there was an acknowledgement that the bill being introduced was incomplete.

This reinforces my view that important tax law was being rushed into Parliament without proper thought and preparation from the politicians.

Now that the government has given GPG a holiday I would urge other groups to fight hard for their own exemptions.

Well it had to happen – the collapse of a finance company. The prize goes to National Finance 2000.

What can we learn from the collapse?

Predicting who is going to fall over in this busy sector is difficult to do. But, in my view, there were signs that company was a candidate for the prize.

With a lack of decent and widespread research and credit rating information in New Zealand you have to look to other far-less scientific ways of figuring out which companies are dodgy, or at risk.

One sign I’ve always thought as useful is that when you see a company doing a level of advertising which appears to be disproportionate with its size and resources worry.

To me it is a sign they are desperate and need money badly. National Finance 2000 is a classic example. Here is one of the smallest players in the market on prime time television urging potential investors to give them money.

Another important factor is to look at where they lend. Finance companies playing in the car finance market and to some extent the consumer finance market face the biggest pressures now. There was a useful graph in the KPMG financial institutions report that clearly illustrated the biggest default rates were in companies in this sector.

We know other companies, notably Western Bay Finance and Provincial, have been having their difficulties too.

But remember not all companies in these markets are having troubles. There are also some solid players in this space too.

The other thought to take on board is what will this collapse mean for the overall sector?

My view has been that if a small, low profile company collapses it won’t have too much impact on the market, but people will start to look a little more closely at their investments and who they are with.

A larger company collapse could cause taint the whole sector. New deposits would dry up and companies without adequate financial strength may have trouble paying out interest payments and maturities.

What could prove me wrong is if other, small to mid-sized company that has used television advertising with high profile individuals, falls over.

I was pleased this week to get an email from TOWER group managing director Jim Minto where he expresses his views on the future shape of the advisory industry. As readers will know we had plenty of responses from advisers – all supporting the argument I expressed in my Blog. Jim’s email is interesting as it comes – I guess you could say from the other side of the fence. I wonder if any other groups are prepared to respond???

My views on adviser regulation per your Blog
“I have had the opportunity to work directly in recent years under both the NZ and Australian adviser regulatory models.
In Australia the Government has mandated Superannuation for the workforce. It is a complex product especially when coming to drawdown time. Most people need advice and the government feels it needs to put a lot of emphasis on regulation of advisers as part of informing and protecting consumers.
The FSR model was designed for Australia and while it conceptually is good it has some major shortcomings in practice. In particular disclosure has often been over engineered and of little value to consumers.
In NZ there is no compelling case for an Australian type regulatory model. There is no preference like superannuation advice granted to advisers in NZ. Disclosure is good but it needs to ensure substance is not overwhelmed by form. More pages don’t necessarily make better disclosure for instance.
Advisers in NZ should not be forced or compelled to join larger groups or Dealerships for pure regulatory purposes. There is not likely to be any requirement for that. Any regulation needs to also encompass other forms of investment advice like property.
In my view in NZ advisers will join larger groups for pure economic reasons and those are always the best ones.
A Dealer or larger group might offer benefits that advisers want such as
· Access to best business practice advice
· Training and development
· Compliance
· Succession planning and so on
I agree with Philip that people should not be driven by fear. That happened in Australia and it created resentment by advisers that still exists in many cases today.
I don’t think any adviser who is operating a good quality business looking after his or her clients best interests has anything to fear here.
The whole picture comes down to choice really. People will join groups for their own reasons and that is the NZ way. I support that.

Jim Minto

KiwiSaver is arguably one of biggest savings initiatives to hit New Zealand for decades. It impacts nearly every worker and will be massive in size involving all parts of the industry.

Fund managers and superannuation administrators are busy working out how it fits in with their businesses and no doubt lawyers and other professional groups are heavily engaged.

The one part of the puzzle that is missing though is how do financial advisers fit into the picture?

As Good Returns has reported a number of times it is acknowledged they should have a part in KiwiSaver. However as FPIA acting chief executive Ross Butler acknowledged at the annual Super Summit in Wellington advisers do not have a role in KiwiSaver.

However the association’s position on KiwiSaver is that it wants it delayed until tax changes are sorted.

We would like to provide more detail on the submission, but technically it is a breach of Parliamentary privilege to publish submissions on Bills before they are released by the Select Committee. (and, to be honest, there isn’t much more detail anyway).

Being good, law abiding citizens who respect the Parliamentary process – not like some other media – we won’t publish the FPIA’s submission until it is released by the Select Committee.

But to suggest KiwiSaver should be deferred until tax changes are sorted is, in my view, a little naïve.

The government has made it clear KiwiSaver is happening on April 1, come hell or high water. They have even gone so far as to tell the select committee few changes can be made at that level, because the timetable is so tight.

My view is that KiwiSaver is a key plank in the government’s next re-election campaign. KiwiSaver just won’t be put back. It is politically naive to suggest this is an option.

Advisers should be lobbying the Select Committee to make changes to get advisers included in the system. For instance it could be mandatory that every employee gets some level of advice to help them select a suitable savings scheme, and this should be funded by the government.