Perception and reality are two pretty confusing things sometimes. Last week we ran the story about NZ Funds partnering with the Institute of Financial Advisers to help provide professional development.

My first take was excellent. It’s good to see the IFA providing t his sort of service to its members and it  s great to see a firm, which has flown below  the radar for most of its life, come out and play a role in the industry.

Well strike me down. I read the comments to the story about the deal over at NBR and talk about negative. Add to that ramblings from Chris Lee in his newsletter (it’s here but you have to scroll down the page to find it) and also a note from some adviser over in Hawkes Bay and you end up with the perception that NZ Funds are an awful bunch.

For the record we have always got on pretty well with the firm and found them pretty open.

In the past the company made some products which you could say weren’t award winners (well not the good awards anyway). It has also been criticised for the role it played with Doug Somers-Edgar and Money Managers. To its credit though it has worked through these issues and closed down MMG (Money Managers).

The way I see it now is that the NZ Funds you have now is a different beast to the previous one. Product issues have been sorted, there has been a change of guard at the top, it is more openly engaged with the wider adviser market than previously and it is pretty innovative with some of its investment solutions.

One would argue that the company is one of the most transparent fund managers in New Zealand

It publishes, every month, a 110 page Portfolio Insights document on the web for clients and anyone else who is interested. Among other information it sets out virtually every asset it owns in every portfolio it manages.

It also publishes and describes all of the associated companies in which it holds a financial interest.

And for every client it provides the facility to receive individualised, since inception, performance reporting which includes every investment they have ever owned, both those that have done well and those that have not. In that regard its “value add” (or not) is also fully transparent.

So yes there is a perception about the firm based on its past, but that is not reality today.

Well the year is nearly over and what a year. Thinking back to this time 12 months ago I am sure none of use would have thought it would pan out as it has.

Regulation has been the overarching theme of the year with its many twists and turns. Its uncertainty and its distraction from the real business – helping clients.

The great recovery hasn’t happened in New Zealand. Businesses have found it tough and markets have been less than welcoming.

The international markets, too, have been a mess. I just need to mention names like Greece and Ireland to trigger groans.

Perhaps a bright spot has been in the life insurance world. This part of our industry has done well, especially in the months before tax changes to life products.

Mortgage broking has had it tough.

The year has ended with a finance company feeding frenzy of regulator activity. It seems the authorities are trying to do a bit of catch up in this area after sitting on their hands for years. Some of their activity, like freezing Mark Hotchin’s assets is quite unsettling. As is the media lynch mob who don’t seem to care about facts or fairness. (Or the real crooks of the finance company world).

What’s in store for next year? Who knows? And who would be prepared to make too many predictions?

No doubt the regulatory train will keep rolling along. There will be some interesting corporate activity and the groupings of advisers will continue to become greater centres of influence.

Good Returns will be working hard to bring you the news. While it is the holidays the site will continue to be updated over the next couple of weeks.

From all the team at Good Returns I would like to offer you a safe, happy and relaxing Christmas break.

The recent, poorly-attended, FundSource conference and regulatory changes have got me thinking about the research market in New Zealand.

For years it has been moribund with little happening and advisers showing scant interest in buying research from the two incumbents; FundSource and Morningstar.

It’s odd as years ago these two organisations (known by other names) ran highly successful conferences which were highlight events each year.

Yet that must change as under regulation advisers will have to be using proper research.

Morningstar has added more resources in New Zealand, even deciding to base its co-head of research, Chris Douglas, in Auckland.

This appears to be a sign they are serious about the market again.

But Morningstar and FundSource aren’t the only players in town now.

Lonsec have crossed the ditch and are pretty active in the market. Reports we have had back indicate that its research people and team are being well-received by managers.

Van Eyk also have been active through its relationship with AMP (and we understand Perpetual).

FundSource is the one which I find harder to figure out.

I assume NZX acquired the business from David van Schaardenburg and NZ Funds, for its extensive database. NZX have shown it is a master at owning monopoly or near monopoly data business and extracting lots of dollars out of them.

I guess it had the same idea with FundSource but has found it doesn’t have the same sort of monopoly characteristics.

From what we can see there is little quant research being done by the house and it is unclear whether that will happen again.

Also it’s unclear who is running the show. We have asked repeatedly after learning that the acting head, TJ Singh, left for a role at Ernst and Young. However every request has been rebuffed with an answer along the lines we are not going to tell you.

Another thing to throw into the mix is that FundSource has partially changed its logo (well it did on the conference material), however the NZX site and FundSource site still have the old one.

The bit which is intriguing is the old one had a star with five pointers – to go with the company five point research philosophy. The new one has a star with six pointers.

Maybe we will get six star funds now?

However more likely is that NZX will flog off the business to someone like Lonsec and stick to data businesses it can extract lots of dollars from.

The journey of ING into OnePath and then into the newly-created ANZ Wealth business is, perhaps a salient reminder of how the funds management world is changing.

It’s also one which raises interesting questions for independent financial advisers (IFAs).

For those who have been around the business as long as I have, you will know this business started off as Armstrong Jones. In those days, AJs as it was known, was Perth-based and spent lots of its early years in Australia with property funds.

In New Zealand it was run by the legendary Paul Fyfe (there’s lots of legends about this man). Fyfe has arguably been one of the most influential people in shaping the industry, particularly the financial planning side, in this country.

Even when AJ became ING and was owned by the Dutch bank Fyfe managed to maintain his independence and shape the industry.

I’ve always argued that one of the strengths of the business is it found some way to deal with most advisers in New Zealand. It built up powerful networks and, although they won’t admit it, was the envy of other managers when it came to distribution.

ING was never short of playing on its support for advisers. Often you would hear the message given to advisers: We give you lots of support, now you support us.”

ING’s world changed when two things happened. Fyfe was replaced by Marc Lieberman, and the CDO funds imploded. Lieberman was not the right man for the job. He was the opposite to Fyfe. He sat on his hands and did nothing when the CDO crisis hit. While he no doubt has skills and experience running a business successfully, he was the wrong man for the job.

Thankfully he was replaced by the very able Helen Troup. If Lieberman was the worst appointment then Troup has to be one of the best. She got the worst hospital pass of all time but handled it marvellously.

While she has been a quiet player, publicly, she has been massively influential behind the scenes and has tidied up a mess.

With the changes we lose Troup, and I think that’s a great loss for the industry. I’ve no idea where she is going, but guess she will continue her journey to the top and may end up in some other country.

Her role is being taken over by John Body, from the institutional side of the bank. While I know little about him, it’s worth noting institutional is very different to retail and intermediated business.

The bigger change is that now OnePath is a bank business it gets all the bank red tape and bureaucracy. This is the total opposite to the days when Fyfe ran the show as, essentially, his business.

That brings us back to the new business. OnePath now has to build up its relationship with advisers again. I suspect that will be a tough job. Possibly made even tougher by being fully owned by a bank and sitting inside a bank wealth management business.

Advisers see banks as their enemy.

Also in New Zealand none of the banks really deal with IFAs. They have their own advisory forces and don’t offer their funds for external distribution.

Banks see wealth management as their space, their place for growth. How this is reconciled with IFAs in the new business structure is going to be fascinating to watch.

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.