When is an adviser not an adviser?

Prominent economist and adviser Gareth Morgan has caused waves in the financial planning community with several articles he has written criticising the way advisers charge fees.

As could be expected, the articles that appeared in the Press, Dominion Post and NBR, were blunt and provocative.

"The deep-rooted swindle that underpins this industry," he says, is the way it charges clients.

"By far the highest barrier to the credibility of the so-called financial advisory industry, is the conflict of interest advisers have the minute they pick up brokerage, trail commissions and soft dollar bonuses from the institutions and promoters of investment products."

The point he is making is that intermediaries who take commissions from product providers should call themselves brokers not advisers.

Morgan says he can call himself an investment adviser because he charges clients a fee and rebates all commissions back to clients.

He has absolutely no problem with either the brokerage or fee models for running an intermediary business, but reckons that one should be called a broker and the other an adviser.

In his view an adviser should be "in the employ solely of the investor with the only source of their remuneration being the fees that investor pays for their advice or portfolio management skills."

"What are over 90% of advisers in New Zealand? They are in effect information brokers charging the investor on the one hand a fee for advice or management, but on the other hand receiving brokerage, entry and trail commissions from fund managers directly proportional to the amount of client money that is put into those providers funds."

Morgan says he has had brickbats and bouquets for his comments. However, many aren't happy that he describes the industry as having become "quite a sleazy" and that some of the so-called advisers are "leeches".

They also become a little confused as soon after these articles appeared Morgan sent out emails to advisers offering to buy their businesses.

One thing many people don't realise is that Morgan spends 90% of his time running a fee-based investment advisory business targeting clients with $1 million or more.

He says the emails and the articles are two completely different things. He has had a number of responses, but generally the firms replying are too small.