Once the headlines of yesterday’s Budget Bonanza for the savings industry settle down and the fund managers’ hangovers wear off it’s time to work out what it all means practically.

Perhaps the biggest message is that any adviser who wasn’t sure about getting involved in KiwiSaver now has no excuse to ignore it.

The government has provided advisers, as well as fundies, with arguably the biggest business opportunity ever.

My question is who is prepared to take it up? Are you?

Oddest Budget comment
Perhaps one of the oddest reaction comments on the Budget came from Gareth Morgan on the Campbell Live programme last night.

As we know Morgan is pretty anti-fund managers and insurers (there was even spit flying on the telly). But the comment which flawed me was his suggestion that funds in KiwiSaver products should have some sort of government guarantee. This from Mr Free Market who also is himself offering his own KiwSaver scheme!

Comments like this are, in my view, just plain daft and irresponsible.

While I have a lot of respect for Gareth and many of the things he has done, I have been surprised and recent KiwiSaver comments and the media’s unquestioning love affair with him. This is something I intend to offer more thoughts on later.

I have received quite a few comments on my Blog about the collapse of the joint APB concept. Below you can read what advisers are saying about the collapse.

Back to the old days

I saw your blog re the IFA and PAA. It’s amazing how the more things change the more they stay the same. I reflected that we could go back to where we were 10 years ago.

We should rename the APB for the G3 to IIAA and the IFA should be IAFP.
GD

Hit the mark

Absolutely Right on!! PAA Yes IFA-No!!
PC

Simple Soul

I had no idea you were such a simple soul whose expectations were that egos had disappeared in the glow of a homogeneous group. Does it even matter?

It was worse when Rodger Spiller wanted us financial planners to remain pure as the driven snow and not get grubby like the insurance agents. Remember?

We have a long way to go before the word professionalism can be applied to collective behaviour. Don’t stress about it!

When the politics take over and the major players are so precious about their little bit of turf, time to move on.
MQ

Not impressed

I would like to make some comments regarding the break-down in talks with the G4 organisations. I am a member of the PAA as well as the IFA (the latter since 1975). I do not agree with Simon Hassan’s arguments.

It would be far better for everyone, if we all worked together. If Simon Hassan thinks that the PAA is a threat to his organisation because they want to be professional as well as offer good benefits for their members, then he is right.

I have not been impressed with the IFA’s education programme in the last 10 years or so, from a personal point of view.

Simon Hassan appears to be ‘flexing his muscles’, without consulting with his membership. He may find that his membership may dwindle quite drastically, if I and others are forced to make a choice.
RG

The Queen will rule

It’s not a matter of who will be King but who will be Queen. What the Queen wants the Queen will get. The Queen is of course Jane Diplock. The Queen will not want a structure where she will have to deal with a bunch of different APB’s. She wants to deal with one entity which will be a co-regulatory vehicle consisting of share brokers, insurance advisers, investment advisers, financial planners and any uncle or aunty Tom Cobbly whose DNA taints a security. The Queen will have the power to license, suspend, convict or castrate any licensee/member of the ONE co-regulatory organisation.

Why is the IFA going it alone? Did you wonder if The Queen and her appointers may have had a word or two in the IFA’s ear?

It is pretty damn obvious at this stage which organisation is viewed to be the best placed to form a co-regulatory partnership.

A co-regulatory model is pretty damn smart thinking by The Queen. Consider who is going to pay for the co-regulatory model – certainly the funds are not going to come from the government coffers. The funding will be the licence holders within the financial services food chain. I expect annual fees of $500 or so will be a thing of the past and more likely $5,000+ will be the cost of holding a license.

However I suspect the licence will also be a licence to board the gravy train that has the license to print money.

At the end of the day the government and the Queen couldn’t give a Tarawera trout’s posterior whether the membership of a co-regulatory organisation will allow the licensee to enjoy holiday homes, cheap PI cover or reduces the cost of filling up the licensees’ Ladas.

I also imagine the co-regulator will have different colleges:

• Financial Planners College
• Share Brokers College
• Security Traders College
• Money Traders College
• Debt / Mortgage Brokers College
• Insurance College
• Investment College
• Budget Advisers College
• Product Providers College
• Trustee College
• Fiduciary College
• Bankers College
• Real Estate Investment College

Advisers will belong to either one or several colleges. We should also consider at this stage whether the PAA, SIFA or LBA have this type of structure at this point in time.

An adviser will have to prove competency to belong to their college of choice. I imagine the criteria will be CFP and, CLU. Share Brokers etc with 10 years or more experience will automatically gain entry to their preferred college.

The rest of us will have a bridging programme or undergo challenge tests to gain entry into our preferred college/s.

I imagine the co-regulator will put together panels of experts in each College, who’s job will be to travel the country and interview and test the competency of those of us who will want to join one or other college. I also imagine this will force advisers back into tied arrangements if they fail the challenge tests and are unable to obtain a license on their own.

Consider the ONE co-regulatory organisation is in place. Is there a need for Banking and Insurance Ombudsmen? Could the government actually be embarking on the first steps of devolving government functions?

Nah this bit of wishful thinking is pure fantasy.

I may be totally wrong but as my motto is “ask someone else’s opinion then always give it to them”.
MS

PS: I am looking forward to a blog on the extension of the IFA President’s term for another year.

Cold bucket of water solution

Interesting points made in the Blog today about the APBs………..my concern is that again professional bodies will bicker things to death and it will have zero impact on the clients in the street but will annoy government who will then bring in draconian regulation to no-one’s benefit, particularly the adviser who will simply pay more to run their businesses.

Regulation in some for will be necessary and as an industry we should stand together no matter what type of business you specialise in so we can ensure with one voice that regulation is balanced so the client is protected, without being absolved of their responsibilities of care and that advisers can continue to practice in a professional manner without being overburdened by paper and costs.

If people need the “cold bucket of water” focus simply look at Australia and the UK – we really do not need that in NZ – nanny state stay out, advisers act professionally and in the interests of your clients and clients maintain your levels of common sense and duty of care – in that way everyone will ultimately benefit!
MC

Well, well, well. So the four associations representing financial advisers can’t work together to make a single regulatory body for their members.

As readers of Good Returns will know the idea of a pan-industry APB created by the four financial advisory associations has fallen apart.

Three groups, the Professional Advisers Association (PAA), the Society of Independent Financial Advisers (SiFA) and the Life Brokers Association (LBA), have agreed to work together to form an APB. Meanwhile the Institute of Financial Advisers is out on its own.

In some ways I’m not surprised with the turn of events this week. While the public comments over the months have all been about the associations working together to form one APB, there has been an under-current running through things.

The undercurrent being that the IFA – the biggest of the four – was holding an ace card. As the biggest the others would have to do what it said. That is what the lead story in ASSET two months ago was saying.

My observation now, after talking to one side and reading the comments of the other, is that the IFA’s end-game was that it would be the APB and everyone else would have to join up to them.

IFA president Simon Hassan admits as much in his comments today.

This seems to be totally contrary to what has been said previously. The common wisdom previously has been that there should be a separation between the joint APB and industry associations.

Not so apparently. Now, according to the IFA, it’s the PAA’s fault for wanting to lift its game and prepare for regulation.
I would have thought that competition and another organisation seeking to lift the professionalism of advisers was a major plus for all concerned.

The other argument, and one which makes me chuckle, is this looking-down-the-nose at associations who provide membership benefits. Hello. Is being professional and providing member benefits mutually exclusive?
I don’t think so – ask the Institute of Chartered Accountants.

Ask members what they want? Do they want to get something tangible for their membership, as well as the values and professionalism?
You bet. Does someone want to pay hundreds of dollars a year just so they can hang a certificate on the wall? I don’t think so.

Maybe there is an argument that big and powerful organisations should be using their strength to get benefits for their members. Take this further and one could argue that these sorts of organisations are in fact letting their members down. (Just a random thought – as my children would say!).

This argument is a new incarnation of something that has been around for ages, investment advisers looking at risk advisers as second class citizens.

Sitting here today it appears that the IFA is playing a high-risk game. Will it win the hand and score the big win?

Hard one to back. If an adviser can join a low-cost APB which provides the necessities to practice and is competency based, and can belong to an association which offers significant benefits which have cash benefits I would suggest that’s a strong offering.

My analogy here is to look at what has happened in the airline industry with the growth of low-cost, no frills operators.

One difference though is that combined the G3 are far stronger financially than the IFA.

I thought in this move to professionalism that all the egos had been packed into bags and shipped off. Yeah right.

Do you agree or disagree? Send your comments to blog@goodreturns.co.nz

In case it has escaped your attention there is significant action going on in the term deposit and finance sector which is signalling a real shake out.

Over the past couple of months the banks have been taking it to the finance company sector (and each other) with huge rate increases.

During this time we have seen bank term deposit rates increase by margins of 150 basis points or more in one hit. You can understand 25 points which is in line with the size of OCR increases, but 100-plus is truly staggering.

We’ve been tracking this changes at depositrates.co.nz.

Also when we look behind the scenes we can see banks are very competitively watching each other in their rate setting.

These increases mean that the differential between what a bank is offering compared to a finance company has increased.
Somewhat surprisingly the fin coys aren’t reacting with their own hikes in rates.

The other trend has been one where a couple of finance companies, NZ Finance and Instant Finance spring to mind, have secured some wholesale funding lines. These have been done for a couple of reasons, one being the inflows from debenture stock can be lumpy and unpredictable, and the second is that these companies have growth ambitions and wish to fund new products.

Standard and Poor’s see this a being good for the sector and suggested this week that further merger and acquisition in the sector will be positive.

My take on all this is that the banks are wanting to protect their market share and muscle in on some of the ground that finance companies have occupied for some years. In some ways this is what is happening in the mortgage space where they are putting, or proposing to put, pressure on brokers who now command around 40% of the market.

The other thought worth exploring at some stage is how deposit taking rates are set relative to risk. It seems risk/reward has little to do with it and competitive pressure rules.