South Canterbury Finance’s demise, and this may seem odd, was a little bit of a surprise.

Sure there were the regular commentary crowd baying for a receivership. They are a bit like the peasants in the old days wanting to see people hung, drawn and quartered, a beheading or simply someone being thrown to the tigers.

Well they got their head this time.

Many thought the company was too big to fail. That’s now history the receivers have been called in.

I’d argue though that SCF’s collapse is not like most of the other failed finance companies. (For a start it’s bigger!)

Most of the failed companies were dodgy. The growing list of legal action is testament to this.

Was SCF dodgy in the same way? Arguably not. It certainly wasn’t run by the nouveau riche in Auckland, the white shoe brigade or the dodgy dealers.

It’s one, as Carmel Fisher noted on Larry William’s Newstalk business programme, that has stirred emotions and pitched many groups against each other.

But we need to cut through the emotion.

The questions which, for me, linger around SCF are firstly its openness. The company has never, until recently, been transparent. It has always refused to provide information to people.

One of the best examples is the research project FundSource tried to establish. It wanted to understand the finance company sector and get companies to voluntarily disclose pertinent information.

SCF always refused.

This was either arrogance or management trying to hide what it was doing.

Secondly, blame must be sheeted home to some of the management. CEO Sandy Maier was interesting on Campbell Live last night when he described some of the lending practices of the company, especially when money came flooding in under the government guarantee as “cyclical excesses and rushes to the head”.

Former CEO Lachie McLeod should be called to account for the company under his watch as it appears that is when most of the damage to this 80-plus year old firm took hold.

The third point, and one perhaps is the most worrying, is comments around how the Hubbard businesses were run. According to the Statutory Managers Mr and Mrs Hubbard weren’t likely to win any best practice awards for their back office systems.

However Prime Minister John Key made a comment that administration wasn’t much better at SCF. Surely this is something management should have sorted and ratings agencies like Standard and Poors’ should have been all over.

While the “commentators” were baying for blood it seemed that SCF was nearly too big to fail and that the political fallout would have been too great for this government.

Well that was wrong. Receivership may well be the best option, particularly because the assets are relatively good (compared to other failed finance companies).

Don’t be surprised to see a deal done quickly where some of the assets are on-sold.

As for the government. Well it has handled the collapse pretty well. Writing a $1.6 billion cheque on the spot is a pretty good effort. Investors should be happy (enough) and it is a smart move that the government has essentially taken over the company. (As an aside it is now a finance company – in wind down – and it maybe some sort of political omen).

Whether it has handled the statutory management process well and what effect that had on SCF’s demise is another matter.

ANZ announced the new name for its ING business yesterday and it certainly had got readers commenting.

If you haven’t caught up with things the new name is OnePath.

The range of views on the name is quite diverse and some aren’t that complimentary (also I should disclose a few haven’t see the light of day either).

I’ve always wondered about how these big corporates come up with new names. My wondering continues. Companies can get great at telling a story around how a name is developed and what it stands for.

One of the best was actually Royal & SunAlliance when it became Asteron. They had this massive multi-city Australasian event where every venue tuned into the main event in Sydney (I think). They had all these images which explained the “emotions” behind the brand.

It was a well told story, but now do I remember any of the images or see them around? Nope.

Bridgecorp did the same thing. You may recall it had all these cute little images which were meant to symbolise important values?

Clearly it didn’t work. It certainly didn’t work on the staff. At one conference their BDM Andy Harris got up in front of the audience and ended up with these cutesy images on the screen and even he didn’t know what they stood for!

“Oh it’s some stuff marketing come up with,” he said (or words similar to that – probably a little more expressive).

One of the curious things with Onepath is that many of the names we see these days are made up words. Fonterra, Zespri, Cervena etc I always thought at the time how naff these names are, but history shows they have become accepted and you don’t hear too much criticism.

Onepath seems different as it is made up of two, common, words and has some meaning already.

Hopefully when the company takes you down one path to riches and protection it is the right path!

Likewise I always thought financial services companies and advisers had lots of paths for their clients and they had to tailor the journey for the client?

But then again I wonder what’s in a name? I recall years ago going on a junket to Christchurch when Infratil was being launched. We checked out these assets the company owned and one night had a discussion about what the name meant.

I recall Lloyd Morrison saying the name didn’t matter. It’s what the company does which counts.

What planet is Gareth Morgan on? His rant, I mean article, in the NZ Herald this week attacking advisers is an odious, boring piece of copy which is best used to wrap up fish and chips.

I wonder if it was timed to coincide with the Institute of Financial Advisers conference which I have been at this week. As it turned out it was published on the day the Code Committee and Commissioner of Financial Advisers, David Mayhew, addressed the conference.

Morgan’s piece was a talking point of the conference. A common theme being here he goes again.

One highly placed man in adviserland described it to me like this: “My eyes glazed over after the first couple of paragraphs.”

“Gareth’s an unhappy man.”

Sure some of Morgan’s points maybe valid, but not all of them. His claim that the Code Committee is subject to “industry capture” is plain wrong. This group has worked diligently to deal with some difficult and complex issues and it has listened to submissions from a wide range of people and organisations.

The Code has to be approved by the Commissioner and also the Minister of Commerce. They won’t be signing it off, if it doesn’t meet the requirements of the Act.

A huge amount of time and effort has been put into creating a set of minimum standards for advisers. Thousands of advisers have been working hard on meeting these new requirements which come into force next year.

Why, oh why, do people like Morgan and Consumer go out of their way to build up this public perception that all financial advisers are bad? There are plenty of excellent and professional advisers helping New Zealanders.

Using the Consumer Institute mystery shop of advisers as proof the sector is flawed is in itself flawed logic.

The mystery shop has been discredited by Auckland University Director of Research and Policy Solutions Dr Michael Mintrom.

The survey is like Morgan’s book he talked about, After the Panic. Full of errors. In fact his book was so inaccurate it had to be pulled off the shop shelves and fixed.

If there is a problem, then it rests with product providers and investors themselves. There have been plenty of investments allowed into the market that have been duds and failed to deliver promised returns.

Secondly, as I have said countless times, the majority of people who lost money in finance companies chose to make the investment themselves. They did not use intermediaries such as advisers.

The main issue is here we have someone who is both an adviser and a fund manager criticising the adviser reforms. It seems there is only one good adviser in New Zealand – Gareth Morgan.

The good thing is that once the Code is implemented Gareth will have to become an AFA. One of the items in the code is about good behaviour. Will it make Gareth shut up?

I had to laugh when this was sent through. It’s the brochure for the ISI’s business replacement policy and an ad from Contact Energy.

Have a look.

Which one’s got more gas!

HT John Ashby

It’s not a good look when the head of an association representing an industry group has to walk.

But Vance Arkinstall probably had little choice in the matter after charges were laid against in his role as a director of failed finance company Dominion.

What has been the surprise is that it took a week between the two announcements (charges being laid and resignation) and that the resignation wasn’t immediate

I note Chris Lee had a go at directors the other day. Here I agree with him to some degree. There are a number of directors out there with form and just seeing them being involved with a company is a warning sign to investors and advisers.

I don’t, for a minute, put Arkinstall into that camp.

I never understood why Arkinstall accepted a board position at Dominion Finance (I haven’t asked either). There was always the possibility it could be seen as a conflict of interest.

Curiously you could argue that finance companies were the enemy, or at least fiercest competitors, fund managers (whom the ISI represent) faced.

It seems to me that Arkinstall has become collateral damage in the finance company fallout. Only time (and a court case) will reveal the full story.

Arkinstall’s resignation is a blow for the ISI. It is an association without a lot of profile and one which was in the process of change. Arkinstall was leading that process and had already done at lot at the ISI including getting it more streamlined and functional. During his time he succeeded in getting good engagement with officials, bureaucrats and politicians in Wellington.

It’s the sort of stuff we don’t see, but is a critical for the industry when it comes to lobbying for change.

I have no doubt Arkinstall has always had the best interests of the industry (including advisers) at heart.

The timing of the move couldn’t be worse for the ISI in many ways. It has been in the news quite a bit this year advocating some changes.

Readers of Good Returns will see the great debate going on about its “anti-churning” policy around life insurance.

Also the ISI has announced that its members were going to introduce a voluntary code of practice and stop remunerating advisers on a commission basis for investment product sales. While the policy was promised sometime ago, details haven’t been revealed – yet.

Maybe they will come before July 31 when Arkinstall steps down?

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).

The ISI’s surprising announcement that it was introducing a voluntary standard to ban commissions on investment products, including on KiwiSaver, will do more damage than good.

My position, as I have said previously, is that commissions are fine. The caveat being that clients’ interests must be put first and that there is transparency, around remuneration.

Removing commissions will in all likelihood have a number of detrimental impacts on the industry. One is that it is another force against the small advisory firms. There is already talk that such a move will be beneficial for the large vertically integrated firms, like banks, who will be able to cross subsidise advice for some customers.

Don’t be surprised to see “free advice” from these firms as they will make their money from other parts of the process like asset management.

Banning commissions will kill many of the KiwiSaver businesses. They are modelled on paying advisers commissions to give advice around KiwiSaver.

There are bound to be many other detrimental impacts. Some of the other bits I have trouble with are:

The ISI is trying to force a remuneration model onto advisers. Whatever happened to the free market and choice? I could understand it if fund managers all voted for Labour, the Greens or some other left wing party, but I suspect they don’t.

Secondly the ISI makes this argument that consumers should be able to negotiate remuneration levels with advisers. This is a nice idea, but bizarre. Who negotiates fees with their lawyer, accountant or doctor? Surely a consumer could negotiate fees with an adviser on commission?

Thirdly, they say because the international trend is towards banning commissions New Zealand should blindly follow these other countries. (No wonder there are so many sheep jokes about New Zealanders).

I have no doubt that there are instances where commissions have influenced an adviser’s recommendation process. There are lots of comments along these lines and it seems to be accepted wisdom in some circles that is the case. However there is little empirical research to support this proposition.

On the other hand one can argue that investors make bad decisions all by themselves. Just look at what happened with finance companies. By far the majority of money that went into failed finance companies was placed there directly by investors, not by advisers. Commission had little to do with it.

My guess is that this voluntary standard won’t be widely used and that ISI members will have options for fee based advisers and those on commissions.

I was asked this week by a radio reporter whether the Securities Commission’s guidelines for KiwiSaver providers went far enough.

It sounds like a simple enough question but the funny thing is it was hard to answer, as the guidelines seemed to be a knee-jerk reaction to one incident. Also it seemed this is the sort of thing which should have been done years ago.

The guidelines weren’t the Securities Commission taking enforcement action. They were like a reminder note to managers.

One of the more important and bigger (but relatively unreported) parts of the guidance note was around performance measuring.

The commission is right that there is no consistency at the moment and this doesn’t help consumers.

I know the ISI has been working on developing a new standard for some time. When we see it is a moot point. Hopefully soon.

One could guess that as it is taking so long there is probably a lack of agreement amongst members on what is arguably a critically important event.

Even if the ISI did come up with a standard, what use would it be when around half the KiwiSaver managers are not members of the body?

Then again, you could ask why reinvent the wheel when there are already globally accepted standards for reporting performance?

It leads to the point that maybe it is time for the commission or government to take the lead and set the rules for the industry. The commission alluded to this in its guidelines.

It said: “In the absence of a consensus (on investment performance reporting) the commission may need to consider the need to recommend legislative intervention in this area.”

But will it have the bottle to do so? And how long will it take?

The other point which was pertinent was what the commission said about directors taking responsibility for documents they sign.

As one KiwiSaver manager said to me, a director should be shaking in his boots when it comes time to sign off an investment statement or prospectus.