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Who should be the commissioner of advisers?

Wednesday, January 28th 2009, 6:21PM 5 Comments

by Philip Macalister

As I mentioned in the previous Blog one of the big events of this year, and one which will set the scene for advisers, is the appointment of a commissioner of financial advisers. My view, and one shared by others, is that this person will set the tone for the industry and be a leading figure. So who should get the job? Well we have been trying to find out a bit more about what is happening with this process but are finding that the Ministry of Economic Development is being pretty uncooperative. We understand there is a short list of candidates and that an industry group has been set up to help. While we don’t expect to see the short-list, finding out who is on this committee shouldn’t be too hard. But it is. Coming back to the appointment, I would make this comment: The person who gets the job needs to be someone who has some knowledge of the advisory industry and its workings and it needs to be somebody who has a pragmatic approach to advisers. What we don’t want to see is a bureaucrat taking charge. Nor do we want to see some lawyer looking for a nice little earner to end their career on. I hear, unfortunately, that the short list has no-one with a lot of industry, or let’s say practitioner experience.  While we don’t want a lawyer or a bureaucrat, we likewise don’t want a failed financial planner! I was toying with the idea of running a poll like the Herald did to find the greatest New Zealander (Helen Clark won BTW). But I wouldn’t do that – unless of course you wanted to nominate someone!
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Comments from our readers

On 28 January 2009 at 10:34 pm Peanut H said:
Phil the reason the MED is reticent about providing the information is the governments desire to reduce bureaucracy. Apparently there is a suggestion the current Commissioner for Motor Vehicle Traders will be serving a dual role. New links will be appearing on the MED's MVTR website shortly. Such as Search the Financial Advisers register, Register to be a Financial Adviser, Renew my Financial Advisers registration and the biggee Banned Financial Advisers. As I write, several candidates for the later category are presently making their acquaintance with NZ's judicial system. It is also an odds on bet that indeed a bureaucrat or some other professional is looking for a nice salary and superannuation package, sure beats running a private practice for a living. I agree the person who gets the job needs to be someone who has knowledge of the advisory industry and its workings. Another initiative the new Commissioner might like to use from the Motor Vehicle Traders is TXT B4 U INVEST.
On 29 January 2009 at 4:09 pm albert k said:
I think the priority is not who should be the commissioner of advisers, the immediate focus should be to regulate all investment products, especially finance companies. There is no point regulating advisers when there is no control over the number of dodgy finance companies with unscrupulous directors popping up all over the place.

Personally, I do not see the point in having a bunch of professional advisors while dodgy investment products floods the market.

Current laws permit someone unscrupulous to set up dodgy finance companies. There is no minimum NPL, no minimum paid-up capital, no restriction for loans to related companies, no authority with the power to audit financial institutions without appointment and prosecute offending directors and shut down their operations. In short, there is absolutely no protection for investors now, the "regulators" simply place the responsiblities on advisors. What's the role of the regulator for these finance companies, or is there one to protect investors?
On 1 February 2009 at 7:06 am Mark Brown said:
Regarding Albert K's comments above, my personal view is that fixed income sector has failed NZ investors across a range of fronts. It's not just the investment products themselves. Last year Government Bonds returned 15.85%, Investment Grade Bonds roughly the same yet, many investors would have fallen miles short of that, even experiencing capital losses. I think the industry has failed because a) the disclosure regime has not worked as the market has accepted info-lite prospectuses, b)brokerage has incentivised brokers/planners etc to NOT be aligned with investors best interests, c)advisors self-manage fixed income without the skills needed (but they don't do so for equities) and d)the previous Government/Securities Commission/Commerce Commission have been too slow and too passive about making changes. The NZ public won't trust financial markets until all of the above are remedied. I favour a Commissioner that will assertively drive for a quantum improvement across the whole sector and am sceptical that either a semi-retired bureaucrat or an insider (existing planner) would do the job. The new government seemed pretty silent of these issues prior to the election, so I have to say I'm sceptical here too. On a related topic, the Capital Markets Working Group (?) seems to have a mindset to make our capital market more efficient (that's useful) but I sense they aren't addressing the core issue of investor trust. To me that leaves the onus on the industry to sort itself out and prove to the public they have done so.
On 5 February 2009 at 8:43 am BS said:
I endorse Mark's comments above but lets focus again on the question posed by Phil. Who should be the commissioner of advisers?

Lets start by understanding the qualities desirable in our new commissioner..
1. Experience in regulating advisers.
Would you have confidence in a rookie to coordinate the regulation of New Zealand's financial advisory industry? Both Australia and the UK have worked through regulation and worked through it again to remedy their first disastrous efforts. Surely an individual from ASIC or the FSA would possess far greater insights into the requirements of this role than any untested, unproven NZ bureaucrat / adviser / company exec?

2. Respect.
I cannot believe that any financial adviser applying for this role would so with purely altruistic motivations. If I may be so cynical I would suggest they are on the hunt for a profile enhancing post and/or their own advisory business no longer provides them with the remuneration, challenge and feel good factor that it might once have. Their application for the role may well be their unique form of succession planning and if this is the case, one would have to question the success of that adviser's business and whether a moderately successful adviser would be accepted (and respected) by his peers as the new commissioner?

3. Tenacity
Because whatever steps the commissioner takes to clean up the advisory industry, someone will say there's a better way.

So that eliminates any New Zealand bureaucrat, financial adviser or company exec from the potential short list. The small size of the NZ industry is evidenced by the one (yes one, not seven) degree of separation factor - everyone knows everyone else, and has an opinion (often inaccurate) of that person and their business. Appointing a commissioner from the limited NZ talent pool could prove a costly beginners mistake.

Appoint an Aussie and get on with it.
On 5 February 2009 at 12:22 pm Barry Milner said:
Surely the Commissioner of Advisers should not necessarily be someone with industry experience. It is not necessary to have advised on investments or securities to understand the need for prudence or to recognise unprofessional conduct. What is needed is the academic capacity to accurately assess the specifics of a complaint and adjudicate in accordance with the code of ethics and the law. The only truly suitable candidates for the position of Commissioner of Advisers will almost certainly come from the judiciary whose freedom from bias is unquestioned no matter what the degree of separation in New Zealand.
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