The ANZ settlement over how ING’s CDO-backed funds were sold brings some closure to the matter – but leaves questions and some lessons.

Firstly investors never really like these sort of settlements. They interpret them as the company doing wrong and all but pleading guilty while they (the investors) don’t get the full benefit (including a scalp).

To describe yesterday’s decision a “moral victory” rather than a financial one is pretty close to the mark, and all that could really be expected.

The reality is that to take the case through the courts would be a long and costly process. No doubt there would be appeals and the matter would drag on and on.

The commission claimed that many of the investors were elderly and couldn’t afford the time, so a settlement was a practical solution.

The idea that there should be some sort of product recall and investors should get all their money back is still, I believe, an unrealistic option.

As Commerce Minister Simon Power said yesterday (in announcing changes to securities laws) “The Government cannot and will not legislate for risk, but we can build a regime that makes those risks more transparent.”

Investors knew there was some risk in these funds and they have to accept that.

The bit that still remains unclear is whether this settlement is just for investors who put money into the funds via ANZ advisers, or whether it includes independent advisers (IFAs) as well?

It seems to me that it relates to ANZ advisers (who accounted for just under 3000 of the 15,000 investors).

In the past we have noted that there were concerns about how ANZ advisers sold these funds and that seems to have been acknowledged in the settlement. However there is little to discuss how IFAs sold the funds.

I have, in the past, compared the ING funds to finance company collapses. This settlement shows two stark differences between the two types of investment.

The first is with a comment the commission made. It said the settlement has been made as “unlike many other situations where investors have lost their savings, in this case ANZ has the financial ability to make substantial further payment to investors.”

Investors in collapsed finance companies should take note. Maybe the lesson is only invest with companies which have the financial strength to put things right?

The second is around intermediaries. All the ING product was sold through advisers (either ANZ or independent), however the majority of money which went into finance companies was put into their debentures directly by clients.

By using intermediaries investors do get some comeback (particularly bank-aligned ones at the moment) and will get more protection once new regulations come into force.

And of course the fundamental problem was no one really knew or understood how these funds worked and what would happen when markets changed.

The lesson – or repeat of the sermon – don’t invest in things you don’t fully understand.

If you ever wanted an example of how not to introduce regulation look no further than what’s happening with financial advisers.

The current process is a joke, is poorly conceived and is wasting the time and resources of everyone in the financial services sector.

The problem, in my view, can be clearly sheeted back to one fundamental issue.

There is no clear idea of what the regulations are trying to achieve.

You just need to look at the preamble in the latest bills to emerge from the Commerce Select Committee last Friday.

As I have asked previously, will all this extra cost and regulation really ensure the public get better and more accessible financial advice? The answer is no.

This government is building bureaucracy, increasing the size of the public service, adding costs to industry and providing insufficient benefit to investors.

It is not what National promised to do.

My sympathies are to many people: advisers and firms trying to do the right thing; education providers and others rushing to get the necessary services to market, but also to people like Angus Dale Jones at the Securities Commission. Who would envy his job, with the politicians and officials rewriting the script faster than he can learn the words.

The latest news this week that insurance advisers and mortgage brokers won’t be allowed to become Authorised Financial Advisers is ludicrous.

Many I have spoken to say they have started along the path of upskilling and want to keep going, even though they don’t have to.

Good on them, I say – but now they aren’t allowed to be AFAs.

It seems politicians and officials still don’t know what they are trying to achieve. The buck ultimately sits with Commerce Minister Simon Power.

I’m not an adviser, but if he wants some advice, it’s this: Take a tea break; work out what you are trying to achieve and how it will help investors and extend the time lines.

Take the time to get regulation right, rather than rush it through urgency in Parliament.

Code Committee chairman Ross Butler said a week or so before the select committee report came out that when it did the s**t would hit the fan. He was so right.

Something unusual happened yesterday. I got excited at a conference!

Yes that sounds scary (and strange) but let me explain. I spent the day at the Responsible Investing (RI) conference organised by Matt Mimms at The Investment Store (and ably support by Jen and the AMP Capital team).

For years I have been a supporter of RI. I always figured it was a no brainer for Kiwi investors. We are clean green. We are proudly anti-nuclear and anti-whaling. We were the first to give women the vote. The list goes on.

To me these values are part of our collective DNA. But do we transport those values to our investments? No.

For years we have written articles in ASSET Magazine and www.goodreturns.co.nz about how big RI is around the world, yet it remains a small part of our collective investment universe.

There are changes starting though. Our big institutional funds like the NZ Super Fund are leaders in RI. More and more KiwiSaver funds which invest responsibly are in the market. Added to that there are a number of fund managers who have signed up to the UNPRI.

The group gathered yesterday was also a change. RI has been a very quiet space in the past couple of years. However there is now renewed interest in it.

Yesterday’s conference was well attended. Indeed I understand they had to turn people away.

One of the sessions which resonated with me was what I would call a keynote speech from the head of the Responsible Investment Association of Australasia Louise O’Hallaron.

The presentation was modelled on Al Gore’s movie An Inconvenient Truth, and the message was (as you’d expect) simple and stark.

Everyday we read about things like the oil slick in the US, the global financial crisis, climate change and wars. We are concerned about what is happening with our planet and change needs to come. We can’t rely on oil and fossil fuels forever. We need to ensure there is food and water to sustain the population growth. We need to deal with climate change and global warming.

One of the things we can do is change the way we invest. Instead of filling portfolios with “sub prime” assets we need to spend more time understanding what the companies we invest in actually do and we need to invest in the other areas like alternative energy.

The price of carbon will have to be accounted for at some stage.

Maybe New Zealand is sensible to adopt and ETS as it may make our companies more attractive in the long term.

On top of this throw in the changes to the financial adviser world. Under a regulated advisor world talking to clients about RI may become a requisite of a good financial plan.

Here at Good Returns we are keen to help advisers understand more about RI and how (and why) they should consider it as part of their business. One idea is to build up a network of advisers and get some discussion going. Included in here would be the ability to ask others advisers about how they use RI. If you would like to become part of this group then drop me an email (philip@goodreturns.co.nz).