Here is the email Revenue Minister Peter Dunne sent to a constituent bagging UK Investment Trusts.

Dear Mr TXXXX,
The short answer to your question…is vested interest. The one group of investors most adversely affected are those in UK investment trusts which currently basically pay no tax at all in New Zealand. These have been heavily marketed by financial advisers here for years for that reason, and thay have been whipping up an understandable campaign amongst their clients because the attractiveness of their product is about to cease. The sad thing is though that they have caused unnecessary fear and panic amongst many investors who will not be affected at all. By my estimate, the vast majority of the letters of complaint I have received (sic) have been from people who are below the threshold levels, and I do question the morality of those organisations that have manipulated their clients in this way to protect their own vested interest.

Yours sincerely,
Hon Peter Dunne

It gives an insight into the minister’s thinking and lack of knowledge about the issue. Sure the UK listed trust sector maybe lobbying and I say good on it. If it can motivate thousands of people to write letters then it has shown it is a serious lobbying force.
To my mind it is about time the industry became more politically active.

Secondly I am aware that people with Australian based funds are also active in lobbying – and in all likelihood a bigger sector in terms of number of investors and money invested.

They too pay little tax.

As one adviser points out to me… if, as the minister says, most investors will be better off under these proposals, why is the whole industry up in arms?”

In less than 24 hours three major government projects in the financial services sector have been put back.
The Ministry of Economic Development, yesterday, said that it is giving another month for submissions on adviser regulation and today a raincheck has been given on KiwiSaver and tax changes.

A question one must ask is this: Are these policies such a mess that the government is about to start back peddling on them?
Put another way: Are they so ill-thought out and in urgent need of a rethink that extensions are a good way of buying time to find a fix?

My guess is no on KiwiSaver and possibly yes on tax.

Clearly there has been a time and capacity problem with regards to KiwiSaver and tax. It was always a short and tight timeframe so a delay is sensible.

Throwing in a sweetener of incentives has the look of seeing super move towards a compulsory regime.

I’ll be interested to see who claims responsibility for the decisions.

I make this comment as I have seen some things said recently which are misleading. People don’t get invited to make submissions to Parliamentary select committees on the strength of their submissions.

All you have to do is tick a box and say yes you would like to be heard in person. Plenty of awful submissions are presented in person to select committees.

On adviser regulation it’s a little harder to get a fix on what’s happening. The official view is that the MED discussion documents on financial products, due to be released next week, may change the landscape so submitters need time to consider them.

Another view is that the major association in the area is having trouble getting its members on side and needs more time.
It is hard to see the framework agreed on and approved by Cabinet changing too much.

But then again there maybe things in next week’s documents which do make a material change to the landscape. Time will tell.
When all the announcements of the past 24-hours are taken into account it is fair to say that combined they are a major jolt to the industry.

Not all bad, but a shake all the same. Also a sign that big change is getting closer.

The unfortunate thing about the collapse of three finance companies in as many months is that they have given the whole sector a bad name – which it doesn’t deserve.

It’s been a bit concerning to see how the media have dealt with the Western Bay Finance collapse – it was the front page lead in the edition of the Herald I saw. I’d have to say that, editorially, there are far bigger stories around. Heck more investors’ money has been lost through the Feltex meltdown, and the government has successfully managed to destroy a whole bunch of investors’ money through its regulatory plans for Telecom.

Likewise it is incorrect to say that all finance companies that lend money on motor vehicles are suspect.

There are companies out there which lend in this space and are sound.

The issue is that in each of the sectors, whether it be car lending, consumer finance, property, plant and equipment etc, there are different spaces.

Some companies will do all the good, lower-risk lending, and others will operate at the lower quality, higher risk end. Investors need to understand where a company sits in each sector.

It would be fair to say that Provincial played in the bottom end of the car lending market, and it appears to have had poor management practices and systems.

Western Bay was doing consumer lending in areas which one could consider low quality.

One of the less clever marketing strategies being employed by some finance companies is to promote the fact that they lend on something other than cars (generally property).

Well I reckon it’s a good beat to say a property-focussed finance company will fall over before Christmas. What’s the marketing strategy then?

The key point of this Blog is to remember are that not all finance companies are bad or dodgy.

There is clearly a place for them in the financial markets, however the rules they operate under need to change.

My expectation is that there will be some form of prudential supervision under the Reserve Bank. However there needs to be better disclosure of material events.

I still can’t believe Provincial got away with not telling the market that Westpac had withdrawn its funding line to the company.

Additionally, and these views have been clearly made previously, better research needs to be available to investors and advisers.

Investors and advisers need to change as well. They should read all the documents thoroughly and understand what a potential company they want to invest in does.

Unfortunately that can’t be legislated for! (Not even under this government).

I would love to hear your thoughts on this topic. Please email them through to me at Blog@goodreturns.co.nz

I’ll stick my head out here and make a bold prediction: The government will back down on its proposed changes to tax on investments. They won’t go through Parliament in their present form.

This view has been percolating along in my mind for a little while now as it becomes apparent that the government is starting to realise that the changes are hugely unpopular.

This is clearly borne out by the unprecedented number of submissions (more than 3600) which have been made to the select committee. The government has clearly misread this one.

The more people I talk to the more I realise this issue is big and the anti-feeling is right down at the grass roots level – the Mum and Dad investors.

Plenty of organisations have been talking about it and it appears fund management/investment firms have engaged their clients on the proposals, and motivated them to find out more and take a position.

On the other hand it has been the government’s job to champion the changes, and promote their benefits. To my mind they haven’t done this at all well or with any conviction.

In terms of support it is worth observing that some fund managers have said they are in favour of the changes, but none of them have come out strongly in support of the proposals. Likewise their representative association, the Investment Savings and Insurance Association, has been quiet. If they support the proposals they should be alongside the government barracking them on.

There has been none of that.

Assuming I am right there needs to be a Plan B as these changes are critical to Kiwisaver. It doesn’t seem like there is one at the moment, which leaves the government in a right pickle, and investors less certain about what might happen to their money.