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Disclosure and disclosure

Thursday, December 6th 2007, 7:49AM 9 Comments

by Philip Macalister

I do have to express my surprise again at the IFA’s annual results and its apparent lack of disclosure to members. As this story reports the IFA made its second consecutive loss in the financial year ending June 30. In the recent results it reported a loss of $170,821 and as a result members’ funds have fallen more than 60% in the past two financial years from $522,531 to $206,271. A couple of things are interesting from the story, that is subscription revenue has decreased at  a  time subs have gone up. This would tend to indicate that membership of the body is falling. Secondly, it must become difficult to set up an APB with such limited resources. It appears the association is expecting help from the government on this matter, but there is no sign, yet, that it will be forth coming. For the record, Tarawera Publishing has published the annual report for the association, the last time being three years ago. With the state of the relationship at the moment being poor, we have no expectation that the association would ask us to do this job at the moment. But at least the former leadership was prepared to keep members in the loop of what their association was doing and the state of its books. With good reason I guess as the members funds had been built to more than half a million dollars. I do find it bewildering that the president, at the start of his term, gave me a rather passionate speech about how, as the body representing advisers, the association had a higher fiduciary standard than other organisations. He said the association had to go one step further than others with financial matters. It’s a pity actions don’t fit the words. I do wonder what members of the association think about this apparent lack of disclosure by their association?
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Comments from our readers

On 6 December 2007 at 8:33 am Jono said:
Rather fitting really isn't it - Disclosure, how can the actual members expect to disclose their glorious commission trails and remuneration to clients when the overseeing body can't even get disclosure right. Would that not concur poor management, shoddy standards and slack practices - something the financial advisory/planning industry seems riddled with.
On 6 December 2007 at 5:33 pm Barrington Smythe said:
In line with the above and the previous blog item regarrding C&M, I think the IFA has lost a large dollop of credibility lately, not only over non-disclosure of its own financial situation, but also the complete lack of any lead on advisers who recommended failed finance companies.

It's blatantly obvious that a sizeable minority of advisers were recommending finance companies purely due to high brokerage. Many of these wll be IFA members. Some are high profile IFA members. We have heard nothing from the IFA about any plans to investigate, name and shame and expel advisers that have been operating with self-interest as the primary driver of advice. Below are the IFA's objectives.

To promote and uphold professional standards.
To determine and promote effective education.
For our members to be the public's preferred supplier of financial advice.
To communicate and celebrate the success of our members and their clients.
To be the benchmark for effective industry regulation.
To be a successful and cohesive organisation.
To support our members to be successful
To raise the financial literacy of the New Zealand public.

If the IFA wants to be the benchmark for industry regulation then let's see it prove this. The best way to improve the image of the industry is to name, shame and expel greedy and incompetent advisers and show the public that the industry cares about its own reputation, and more importantly puts client interests first and foremost every time.
On 7 December 2007 at 9:25 am Peanut H said:
Jono is incorrect in his comments on IFA disclosure. The IFA always publish a full copy of their audited accounts and supply same to each Member.

If B Smythe has evidence of IFA Members recommending finance companies purely due to high brokerage, then B Smythe should simply put the evidence to the IFA for scrutiny. It is not the IFA job to react simply to rumour or speculation. The IFA is a professional association therefore has to operate to a high standard of evidence when it comes to enquiring into a Members possible breaching of the IFA rules.
On 7 December 2007 at 10:53 am John Walker said:
The problem the IFA has is shared by many professional associations of the same size and scale (NZMBA, IBANZ).

All these organisations have the size to appoint a highly paid CEO and maintain and office but not large enough to provide any real value to their members.

All of these professional associations provide minimal real value to their members and fail spectacularly when it comes to influencing government (see any regulation introduced in the last month or next five years) , suppliers to members (see banks commission rates and the NZMBA), or the public.

The IFA is a great example.

It was invisible during the Finance company meltdown

It's CEO talks about high standards while telling members his irregular newsletter (which includes his gardening tips) counts towards their professional education.

For real?

None have any activities other than WOWP (words on a web page) or a vision on where there industry will be in the next 1, 3 or five years.

The metrics they are interested are membership numbers.

If the IFA didn't own the CFP mark would it be a social club

Finally the money quotes from David Hutton

From Good Returns

He would not comment on whether the 2007 result would have been in the black if conference earnings had been included.

"That's commercially sensitive information," he said.

Translation - No

The two successive deficits have also reduced IFA member funds from a high of $522,531 at the start of the 2006 period to a new low of $206,271 in the latest report.

However, Hutton said the IFA remained well-resourced and was "trundling along fine".

Translation - There is enough money in the kitty for me to see out my contract
On 7 December 2007 at 12:51 pm Jono said:
Peanut H misses the point entirely. B Smythe and J Walker are on the money here. The IFA seem incompetent to act against any of their members - or would that be wrong to act against your members, surely they wouldn't want to bite the hand that feeds them....

The other point here is that the IFA are in a deficit situation, so how on earth can the IFA ever proceed with some lengthy investigation into corrupt advisers which would only cost them more resources and cash they don't have.

Now how about this for a catch, the next time you go to an IFA event or conference, how many Insurance Companies and Fund Managers and Finance Companies are in attendance and presenting to you? How much have they paid to be there and to who have they paid - I wouldn't mind knowing this.
On 8 December 2007 at 3:21 am Peanut H said:
I don't normally jump to the defense of the IFA in fact in the past I have on more than one occasion called on the IFA to correct their plonkish behavior. But some of the comments I have been reading are plainly unfair and in my opinion without a shred of merit.

The best way to improve the image of the industry is for every adviser to belong to an organization with professional standards and for those Advisers to adhere to the professional standards. If you are reading this and are not a member of such an association then your days as an Adviser are numbered.

It is also not the job of the IFA to conduct a Royal Commission of Enquiry into who in the industry should be named, shamed and expelled as a greedy and incompetent Adviser. The Securities Commission and Commerce Commission are the gate keepers of the Fair Trading Act. If incompetent Advisers exist (I'm sure they do) then the Securities Commission and Commerce Commission should be called upon to investigate such matters.

The IFA when presented with correct and proper supporting evidence have always thoroughly investigated and when appropriate the Adviser who is found guilty is always sanctioned for any breach of IFA standards. The IFA not giving an iota about biting feeding hands. If you haven't seen this in action for yourself then you are either not a Member of the IFA or don't bother reading the IFA disciplinary committee outcomes.

I also strongly disagree with the statement that all of the professional associations provide minimal real value to their members and fail spectacularly when it comes to influencing government. The current disclosure regulations have clearly been drafted with a great deal of input from all the professional associations and the further roll out of Adviser regulations has a large amount of input from not only the professional associations but also Advisers themselves. If you are an Adviser who made a submission then I salute you for caring about your profession.

The sad fact of life is that at least a third of professional association members do not bother to participate in the process and these are usually the members who complain about the value they receive. It is also interesting to note that the majority of IFA members are not CFP or CLU designated therefore they are probably members for reasons such as wanting to belong to an association with professional standards.

If you want evidence of who has been invisible during the Finance company meltdown just look at the heads of the Securities Commission and Commerce Commission. Consider the following responses from the Securities Commision and Commerce Commission in relation to a complaint about a failed finance company. "We are forwarding a copy of your complaint to the Commerce Commission explaining our situation and that as a result it is likely that your complaint may fall within the purview of the Fair Trading Act 1986. It is however ultimately up to the Commerce Commission to decide whether or not your complaint falls within their jurisdiction and whether or not to investigate the matter. We would however suggest that you seek legal advice in relation to your complaint and the actions available to you in relation to the matter." "The Commerce Commission must weigh up the merits of each complaint in areas of cost and public interest. As our resources are strictly budgeted within cost and available personnel we are unable to investigate your complaint and suggest you seek independent legal advice in relation to your complaint." What they are saying is the finance company meltdown ain't no dog biting a child or cows farting and increasing greenhouse gases. There ain't no votes in exposing greedy incompetent Advisers.
On 8 December 2007 at 4:58 pm John Walker said:
Hi Peanut

You're not exactly going out on a limb with your prediction if you 'are not a member of such an association then your days as an Adviser are numbered'.

It will be compulsory once the Financial Adviser's Bill goes through

My Predication

Looking at the Financial Adviser's bill it's pretty clear that the G4 is dead, as the IFA will want to become an Approved Professional Body (nothing like compulsory membership to help drive up numbers for a professional association most industry participants won't voluntary join!)

They may not terminate their G4 discussions immediately, in fact I expect they will be very courteous to the other G3 participants while their own application to be an approved professional body is prepared and quietly gets past the minister.

The secretarial services kindly provided by the IFA might be a little slow finalising the G4 application!

After the IFA APB is approved they will be able to drop the other G3 citing irreconcilable differences. (Translation - they won't close down and let us run the industry)

Any other professional associations whose membership numbers more than the local child care center (SIFA - I'm talking to you) will probably get rolled up into a G3 Approved Professional Body, as once implemented, the Financial Advisers Bill will legislate out of existence any Professional Associations that are not Approved Professional Bodies.

All the bank employees providing advice will find themselves members of the ISI APB (unless they are a CFP again have to be a member of the IFA to retain that industry designation most members of the public don't know about).

Mortgage Brokers will continue to live in there own little world

ANZIIF will battle with IBANZ and the G3 APB for the rest of the insurance industry

Peanut, I do think you are kidding yourself over the level of influence the IFA and other professional associations have. You haven't indicated any areas where the professional associations provide value other than kid yourself that they have influenced the government on regulation.

As you correctly point out the government isn't interested unless it increases greenhouse gases. Co-regulation suits the government because they have no risk if there is a problem.

It's easy to be influenced to do what suits you and it suits the government to have professional associations/APBs to blame for industry problems.

Also the fact that the Securities and Commerce Commission are invisible doesn't excuse the IFA's lack of visibility.


If I'm going to belong to an organisation with professional standards of financial advice I'd rather be in that

a.) doesn't wait for a phone call to see if those standards are being adhered to and

b.) is actually going to be around when regulation is finally implemented in 2012

( IFA's current financial trajectory would seem to make that 0 for 2 but you never know)
On 12 December 2007 at 7:28 am Murray Weatherston said:
As both an individual and as Chairman of SIFA I have observed this thread with interest. From his last post, John Walker seems to be reasonably up with the issues though from my perspective his analysis seems a little askew. The intenecine warfare in all the posts is amazing. The sooner this squabbling stops, the better.

I am interested that he thinks SiFA aspires to be a Professional Association. As a member from inception, and now doing a second stint as Chair I haven't noticed that. We are a group who meet together for common interest. Our only activities have been to organise 2 educational conferences for our members each year. The only time we have ever made a submission has been in the context of adviser regulation because it directly affects all our members. We don't spend any time on political matters. If anyone thinks we are plotting to be a threat to the likes of IFA they have rocks in their head. We will continue to exist so long as our members continue to think we are giving them what they want at a price they can afford.

Like it or not all our members are going to be involved with co-regulation of financial advisers. I have been running point on tthis issue for SiFA for a while. We are too small to set up an APB on our own - so inidentally do I think is IFA. Scale will be important.

Thanks principally to the efforts of Ross Butler (Acting CEO of IFA) we started talking with IFA PAA and LBA a few years ago. The thing that brought us to want to talk to each other was regulation.

We formed the G4. I possibly couldn't comment on John's speculation about IFA eventually going it alone. But I can comment on his implied suggestion about the vulnerability of G4 to IFA providing the secretariat.

What they do in that role is book the meeting rooms, take the minutes, print the agenda papers etc. However they do not prepare all the position papers for discussion - we share that duty out amongst the 4 members. So we all get the IP from the process - we would not be a jilted bride at the altar if John's prediction proves true.

G4's aim established right at the outset was to establish an APB "independent of all our exisiting bodies". First and foremost, an APB is a licensing body - if you are accepted as a member of an APB you will have a licence to dispense financial advice; without it you won't - unless under the current Bill you are a lawyer. Our APB is intended to do only those activities required by the legislation - no buying deals, no pathways to higher education, no conferences, no lobbying etc (all those being left to the exisiting Associations).

I think G4 has made good progress so far. Whether we can finish the job and get annointed as an APB remains to be seen. But we won't fail for the want of trying.

PS if John Walker (or anyone else for that matter) wants to contact me personally, 09 3031447 or
On 12 December 2007 at 8:16 pm B Smith said:
John Walker.. maybe you would be so kind as to let the rest of us in on what your contribution to the industry is? Then we can all take pot-shots at your efforts.
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