Yes I am talking about KiwiSaver and the Commerce Minister’s statement this week about bringing forward a review of some of the regulatory functions.

Some of the ideas such as having the same reporting requirements for default and non-default providers makes sense.

But the idea of a “super-regulator” seems to be a huge over-reaction. Why not, instead of creating another government department, make sure the rules in place now are properly enforced?

You have to look no further than the trustees on this one. It’s hard to argue against the proposition that trustees failed in their supervision of the finance company sector and their duty to protect investors.

Unfortunately we are seeing re-run of this situation.

The trustees’ role with KiwiSaver should be more than just making sure the scheme adheres to the trust deed. They should be looking at more than that and looking after investors.

I have spoken to some KiwiSaver providers and they are quite amazed at how little trustees do with KiwiSaver funds. The point being you wonder why they are there at all, except to collect fees.

There has also been talk about what happens when you have one firm that provides both fund administration services and trustee services to a manager.

The argument they can’t tell each other what is going on because of Chinese walls is fine in theory, but looks like a conflict of interest.

Maybe the fund administrator should alert the trustee to anything it sees that could be marginal (let alone outright dodgy).

Surely that is not too hard to do?

Power tells us he has fast tracked work being done by officials on KiwiSaver regulation. Sure they may report back in four weeks time. But when will anything be done? Let alone asking the question does anything need to be done?

A couple of people did wonder if Peter Huljich was going to turn up on the night. Who knows, before all this news broke of what had happened Huljich could have been in the running for one of Morningstar’s awards.

The unanimous theme is what had been done was wrong.

The funny thing though is that it was wrong, but wasn’t a situation where investors were being ripped off. The closest, I think you can come, is that people signed up to the fund under false pretences. They were sold on returns which it turns out are questionable.

There are still unanswered questions though. For instance, why didn’t Brash and Banks know what was going on in the business? They are directors and sign off accounts.

They are not scot-free on this one and have some explaining to do themselves – although I note an explanation is not likely to be coming anytime soon.

Brash makes a point in his press release that says “some of these allegations (made against Huljich) are unfair and some are untrue.”

It would be helpful if he explained them.

Secondly I don’t think changes in the rules around funds would ever prevent this sort of thing happening in the future. The only likely outcome is that penalties for anyone caught could be tougher.

I also note many people have jumped on this story to push their own agendas – particularly the business presses page three pinup Gareth Morgan. Surely we can find someone with less conflicts of interest?

Added to that, Morningstar used it as a hook to push its call for fund managers to disclose all their holdings.

I do have to defend the research houses though. They can’t be expected to audit every managers’ books to confirm the data sent to them. That is ridiculous.

The other oddity here is that Brash is now running the show and is chief investment officer. Sure he ran the country, and used to print money, but can he manage money for investors?

We will be watching the returns to see.

The story, for the NZ Property Investor Magazine asked, amongst other things, whether changes to tax rules would end the Kiwi love affair with residential property.

It will come as little surprise that the answer was no.

Kiwis will continue to place their faith in bricks and mortar.

There are many reasons for this but one which came up a number of times was that there is little faith in other assets like shares.

Also distrust came through of corporate, big business and managers. The coincidence here was that the government’s response to the Capital Markets Taskforce addressed this very subject.

In looking through the responses it seemed there was little there which would change Kiwis attitudes.

Sure they the government supported a few ideas like putting investment statements into plain English, adding warnings when products were “particularly risky or complex” and a few other things provide a bit better quality of information to investors.

However, some of the things which are key to improving New Zealanders investment outcomes is better financial education and literacy.

The taskforce recommended that initiatives are employed to raise investment literacy including a targeted campaign promoting key investment messages.

To this the government said “further consideration required”. Then there was this one: Include investment literacy concepts in the school curriculum and resolve the issues preventing approval of the Personal Financial Management unit standards.

The government says it doesn’t need to as schools are self managing and they can include financial literacy if they consider it appropriate. Surely the government can be more proactive than this?

If it wants economic growth and a step change in the economy then having a financially literate population is a must have.

Not a particularly eloquent name, I must admit. Then I thought about it a little more and figured that’s the role of a PR guru, rather than me.

Instead I have warmly welcomed the moves by some finance companies of offering non-guaranteed product to the market.

So far only Marac and PGG Wrightson have done so, but others, I hear, will follow soon.

It’s good for a number of reasons.

Firstly it shows you how much the guarantee really costs. This is something like 100 basis points. To my way of thinking it is far better the investor gets this rather than the government.

It also makes investors and advisers return to basics and think about the risk reward equation. It’s been too easy just to say take the company with the highest guaranteed rate.

Who needs an adviser to do that?

Advisers and investors should be researching any company they plan to invest in before giving them their money. It doesn’t matter if it is a finance company, a managed fund or a listed share. Do the research.

The challenge for advisers though is they have to start doing some work rather than take the easy option of saying to clients, take the guaranteed product.

At some stage the guarantee will go. The sooner the better as it just distorts the market, and encourages laziness.

After hours counting the votes the key group voted in favour of the deal by just 0.4%. To succeed 75% of Hanover investors had to vote in favour of the deal. The biggest group, Hanover debenture holders said yes with75.4% voted in favour.

The meeting was far more sedate than the moratorium decision meeting a year ago, with fewer investors turning up.

It seems there was a bias in the audience. The anti brigade fronted. The acceptors didn’t.

I suspect part of the reason is that those who wanted to taste the shareholders’ blood are the ones who turned up.

They probably left dissatisfied as shareholder Mark Hotchin wasn’t involved in the meeting too much, and when he was he fronted strongly. Fellow shareholder Eric Watson did a no show leading to accusations he was a “shyster” and “chicken livered”.

What struck me about the meeting (except for how young I felt amongst all these investors) is that emotion over-rode intelligence.

Instead of baying for blood investors should try and be objective and look at the merits of the deal.

Allied, Grant Samuel and others have been straight up and said if investors take shares there is a strong likelihood (I’d say 100%) that the share price will tank in the short to medium term.

Also Allied Farmers MD Rob Alloway, while talking positively, acknowledged the Hanover book was a mess.

The outcome of the meeting swung on the knife edge judging by the performance of some players.

Here we rank how the key players performed – a little like how All Blacks get rated after a test match.

• Meeting chairman; Charles Darlow ; 6 – A solid performance like when he chaired the moratorium meeting. No nonsense, in control and organised. Let himself down by allowing “statements” at the end. Here a group of investors, most with scripted speeches, gave rousing performances extolling investors to vote against the proposal. These statements took the meeting to the knife edge. He shouldn’t have allowed them.
• Hanover chairman, David Henry, 2 – As he acknowledged he isn’t “an elegant speaker”. Ran the risk of putting all the old dears to sleep. His closing comments could have been stronger and more persuasive. Poor performance.
• Allied Farmers managing director, Rob Alloway, 7: Mr Nice Guy. Addressed most people by first name. Wore his heart on his sleeve. If anything too nice.
• Hanover shareholder Mark Hotchin; 8; Couldn’t believe he wasn’t involved in the meeting much until well into the second half when adviser Ton Watson challenged him to put in $20 million cash. Hotchin gave a passionate response, giving a frank assessment of how they first viewed the deal and why it was good for investors. Hotchin doesn’t like public speaking at the best of times, however necessity has seen him develop into a good speaker.

Reserves

• Hanover independent director Des Hammond – Didn’t have too much to do during the meeting, but kept the media at bay when they quizzed Hotchin in the stand up press conference while votes were counted.

He said that at the start of the year New Zealand was in a highly vulnerable position, facing much uncertainty and was surrounded by high risks. We were teetering on the brink.

All it would have taken to bring the country down would have been one irresponsible headline in the media.

Then he thanked the media at the press conference for being responsible and not triggering an economic disaster.

This showed how perilous things were at the start of the year. Secondly, the same couldn’t be said in regards to how the media have handled one of the other big business stories this year.

Those stories were about Hanover and the treatment of shareholder Mark Hotchin.

It has been quite stunning to see what has been happening in some of these investor meetings around the country. Read this piece at the Herald to see an example.

These investors are quite rightly and understandably upset and emotional.

But, in my view they didn’t get to this point by themselves. Their anger has been fuelled by the media, and in particular TV3’s John Campbell and Shareholders Association chairman Bruce Sheppard. The latter in particular has been a disgrace making ill-founded and incorrect comments on prime time telly.

Last night TV One’s Close Up presenter Mark Sainsbury signed off the show acknowledging comments made by Sheppard were false. The media should stop using these rent-a-quote, barrow pushing people as the voices in their stories.

I will defend Hotchin to the point that at least he has had the courage to front up in person to investors. Likewise he and fellow shareholder Eric Watson have come to the party and put additional money into the company, which they didn’t have to do.

We have seen first hand on Good Returns the sort of mob behaviour which has been fuelled by this sensationalist reporting. Some of the comments posted to stories have been unbelievable, highly emotional and in some cases threatening violence. We haven’t approved those comments and they won’t see the light of day. We encourage discussion, but we won’t be part of this orchestrated campaign of hate and vilification.

For the record, I don’t mind if advisers earn commissions as long as it is disclosed and customers have choice.

Also to get things clear, there are different remuneration structures for the various disciplines of advice, namely; investments, KiwiSaver, mortgages and life insurance.

I think the debate is only about investment products, however it seems that some commentary has included all financial products and services.

With life insurance I tend to agree that remunerating risk advisers on a commission basis is probably the default setting. If you take the argument insurance is sold, not bought, then a commission basis is fine; just disclose it.

Mortgages are similar. There is a slow trend to an advice model here and that is encouraging to see.

Investments are where things get interesting.

This whole idea about banning commissions seems to have come about due to the collapse of various finance companies and perceptions that advisers poured clients into finance companies because of the commission they were paid.

There is a slight element of truth to this. However the big over-riding fact which is being ignored in the debate is this:

The large majority of the money which went into finance companies that collapsed, went in directly from investors. This money did not get there through advisers.

By my reckoning, around a third of the money in collapsed finance companies came through advisers, yet they are getting 100% of the blame.

Banning commissions isn’t the answer. It’s investor education, as I argued here. Also it’s up to the product manufacturers to change the way they reward advisers and the regulators to make sure dodgy operators are closed down.

Yesterday I sat in on an AMP briefing about what it is doing with its advisory business. One of the interesting things was when CEO Jack Regan talked about the attributes needed to be a successful adviser. I won’t list them all, but what is worth noting is that the whole package was wrapped up by acknowledging advisers were sales people; the term used was “professional salesmen”.

Many sales people are remunerated on a commission, or partial commission basis, so why can’t advisers?

Another ignored point which bothers me is around share brokers. Hello, these people have been commission-driven salesmen since Adam was a cowboy. Do they get the same opprobrium as financial advisers?

Nope.

I bet if you looked at many of their portfolios over the past couple of years you will see some significant losses.

Apparently that is OK.

Very strange.

I thought I’d give you seven reasons why the deal will go ahead.

1. No one likes admitting to failure. Investors have shown they are reluctant to put a company they backed under. It’s like they are admitting they made a mistake. Remember the majority of investors who put their money into Hanover and United did it off their own volition – not through advisers.
2. They voted in hope for the moratorium and they will do the same again with Allied Farmers.
3. It’s a way of saying goodbye to Hanover shareholder Mark Hotchin and Eric Watson. Nothing like a public humiliation to make one feel better.
4. Instead they replace them with the new Mr Nice Guy Rob Alloway.
5. At least it’s a way out. Currently investors are stuck in the moratorium. They can’t do anything and it seems Hanover is pretty hamstrung too.
6. Allied Farmers needs the deal as much, if not more then Hanover. Remember they are the ones who initiated it. They need the capital and the size. Without this deal its future in the finance business is less than rosy.
7. Investors with a medium to long term view may well see the deal stacks up. Hanover’s books don’t look particularly good in the light of the today’s economic environment. But markets go in cycles and no doubt somewhere, sometime the picture could well change.

Sure I may be wrong, but hey even the Independent Report suggests receivership isn’t all it is cracked up to be.

Yes it should be no surprise to see some negative reaction, particularly as in some quarters it was portrayed as a get out of jail free card for Eric Watson and Mark Hotchin – and some tried to make a story that they personally were going to benefit.

It is good to see a range of comments, but please, no one listen to Bruce Shepherd. He made it clear last year what his views were on Hanover and it seems he is emotionally involved and not particularly objective.

Some of the things he has said are blatantly incorrect and designed to mislead. I said in a Blog ages ago that maybe it is time there was a change of leadership at the Shareholders’ Association, and recent events have reinforced that view.

After reading Paul Holmes’ piece on Sunday my eyes weren’t just rolling round in my head they had popped out of their sockets. This guy is someone people look up to and listen to. Surely he could have got his facts right first. He proudly admits to being totally ignorant about investment finance so maybe he should have steered clear of the subject or done some proper research.

Coming back to the Allied/Hanover deal. In days subsequent to the announcement the attitude and commentary has changed. I note Brian Gaynor’s piece in the Saturday Herald as one example.

That is good, as investors need to make intelligent informed decisions, not emotional ones.

This is even more important as trying to make sense of whether it is a good deal or not is difficult because it is so complex and we are still to see the details and fine print of the deal.

I’ve been leaning on the positive side  of it and if the story today, that another competing bid may emerge, suggests that the deal has some merit and may be the catalyst for a better one.

When the moratorium proposal was being discussed it seemed to me sensible that the Hanover loan book was managed by the company rather than receivers. However, that is partially wrong. All the good people in this area have left Hanover and the book probably isn’t being managed as well as it could be.

Having a new bunch of managers at Allied running the book and trying to manage it to successful outcomes is a better idea.

I prefer it to receivers. The view I expressed to someone recently was that if receivers got their hands on the book last year and tried to realise it investors would be lucky to get 20c in the dollar. The market’s been at rock bottom, there are no buyers, no finance and many of the Hanover loans are second mortgages which in this market are next to worthless.

Markets go in cycles and if the book can be managed through the troughs then some much better outcomes are likely.

Whether the deal will go through is a moot point as there are so many stakeholders. My guess is that getting it through the Allied vote could be the hardest.

At this stage it seems there are some winners, particularly the likes of Hanover Capital investors. The Allied shareholders seem protected; Allied Nationwide investors get a stronger company and that leaves the biggest group: Hanover and United debenture holders. They have to decide whether becoming shareholders in Allied is better than having, frozen Hanover debentures being repaid on a long, slow, drip feed basis.

There is a feeling that any control or input advisers had over their coming regulation has totally disappeared.

Last week’s sacking of two advisers from the Code Committee affirms this notion strongly for me. Especially as there are no plans to replace them on the committee.

Also former AIA New Zealand boss David Whyte made a lengthy comment on the article last week which had some salient points.

One he made was any thoughts of co-regulation of the advisory industry are long gone.

He also made some very interesting points about the Consumer survey of advisers and why it was flawed.

There is a feeling the survey had a pre-determined outcome; if so it achieved them.

IFA president Lyn McMorran said in an email to members yesterday it used “sensationalist” – that no one would really argue with.

However I have also heard the language in the draft sent out for review and the final published work was vastly different.

With regards to the sacking of Patrick Middleton and Liz Koh, I’d have to say that the Commissioner of Financial Advisers, Annabel Cotton, has over-reacted.

One argument put to me is that if these two were forced to fall on their swords, then anyone associated with any of the firms which “failed” the Consumer survey should not hold high office. This argument would capture people like McMorran.

Clearly that doesn’t make sense; just like the Code Committee sackings make little sense.

I doubt many people had linked the Code Committee members with the survey and surely it would have been possible to defend them if the situation ever developed that far? Both are well-regarded members of the advisory community and no doubt provided valuable input into drafting the regulations.