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Let's educate as well as regulate

Friday, October 16th 2009, 11:39AM 6 Comments

by Philip Macalister

After a little absence I'm back! I wrote this post a little while ago as  it touched on a theme that had been on my mind for a while. Also once I started sounding it out on others I realised many agreed with the thoughts. As usual would love to know what you think. My other little - pre Blog announcement - is that since Blogs had been a little thin on the ground I thought I'd add a Twitter account too. This way I can give you some other thoughts on things as they happen. You can follow me at http://twitter.com/PhilMacalister Now for the Blog! There is this view at the moment that adviser regulation is the answer to all our financial woes. Woes could stand for “when over-excitement strikes’ and examples include people losing money in finance company investments and dodgy property schemes like Bluechip. Sorry, adviser regulation is not the panacea for preserving us from future ‘woes”. I support raising the standards and improving the quality of advice (and have argued overall it isn’t bad in New Zealand). The harder problem to solve is investor education. No matter what the powers-that-be say about recent “issues” an underlying problem is people making dumb decisions to invest in dumb products. I am a little tired of hearing about investors calling themselves “victims”. In many cases their woes are of their own making. They looked in the paper for the highest finance company rate and invested their money there. No advice was given. Things weren’t helped by unqualified self proclaimed experts providing ratings for these investments that may have given encouragement to the investor. The recent case Bluechip court case makes the point the law isn’t there to protect bad investment decisions – nor should it be. Now don’t get me wrong. There are things that can be done to improve the advisory industry (and make it a profession). But if you are going to put an ambulance at the top of the cliff it is regulation of product manufacturers. Someone should be looking at finance companies, CDOs and these other non-mainstream offerings and making sure they are properly represented to investors. Yes there should be an ambulance at the bottom of the cliff dealing with the dodgy investments and their fallout. The curious point here is that neither of these are about the advice process; it’s at the product and regulation levels. My biggest concerns are that advisers are held out as the scapegoats when there are others that are more culpable – mainly Mum and Dad investors who take no advice. There are plenty of advisers who do a bloody good job for their clients. Yes, there are some who don’t do such a good job too. But what is being proposed is going to drive good advisers away from the business and add significant costs to those who stick around. Making it harder isn’t going to automatically produce the outcomes some want. I don’t hide the fact I am pro- advice and think it is in an important part of the process. If regulators and others want to fix the problem start with financial education. Punters are often their own biggest enemies.
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Comments from our readers

On 16 October 2009 at 2:16 pm John Winch said:
Absolutely agree here with some sound advice on education. We need our young people leaving the education system with a sound financial awareness.This is where it has to start. Education is the very building block & will go someway towards our young people achieving financial independence. Let's face it, governments around the world are not facing up to the problems of a demographic time-bomb in favour of putting off today what they can promise(& fail) to do tomorrow. Look what's happening to the Cullen Fund as just one example. We also need a strong regulator who can regulate effectively at the most complex end of the spectrum as well as at an individual adviser level. I stand up to be shot down here but NZ is in dire need of a single regulator & a single ombudsman to cover all product providers & advisers in the financial sector. After the ANZ/ING debacle investors are screaming out for some consistency. Let's also have some consistency in raising professional standards with a single industry recognised certificate of achievement & higher educational standards for those preferring to specialise. It doesn't need to be complex but the current system does need to change quite significantly if we are going to restore investor confidence anytime soon.
On 16 October 2009 at 6:02 pm LPL said:
What is needed is not a collection of organisations, associations and complaints processes - but rather one unified approach. Regulation with the ability to register directly or through a QFE is a step in the right direction (but personally I believe each individual should be on a central register for public inspection and scrutiny).
The suggestion that there will be multiple complaints processes (possibly outside existing associations) fails I believe from a clients perspective. If regulation is truly for the benefit of the client then why not make it as simple as possible with one central complaints point. If this is not the case isn’t it clients who are going to be the losers? When they have a complaint, they must first establish based on who provided the advice where to complain. Then they are reliant on that complaints process to work. Who is going to regulate the complaints process?
It is an unfortunate reality that changes are going on when individuals feel dissatisfied with investment outcomes and most submissions are from product providers or existing associations. Vested interests prevail.
I hope that someone stops to say, if I was a client – what would I believe was in my best interest?
On 19 October 2009 at 11:47 am adam smith said:
Re a single place for consumer complaints - a large number of submissions to previous "White papers" suggested exactly that - 1 consumer complaints system. However Government and officials in their wisdom decided that there should be provision for competing EDRS's with a backstop of a default EDRS for the regulatees who did not want to join any of the competing EDRs. Ask those who made the original decision to go for competing systems to explain!

On another matter it is quite possible that there will be little market demand for adviser associations once the new regulation is in place, as all an adviser will need is to be authorised as an AFA in order to practice. [The existing bodies might well be hoping that QFEs make a prerequisite that their employees and contractors must belong to an IFA or PAA or NZMBA as part of their employment or contract.]

Adam

PS EDRS = external disputes resolution scheme (or service); AFA = authorised finacial adviser
On 20 October 2009 at 12:42 pm alan said:
About five years ago at the height of finance company popularity, I lost a client. This retired couple had been with me for about ten years and we had achieved an annual return of a little over 5%pa net of fees and tax. Suddenly, every time I went to see them, they confronted me with advertisements by finance and mortgage companies, cut from the papers, offering rates of 8%,9%,10% or more. Why can't we have some of that, they said. I argued that they were unacceptably risky investments for them, but not long afterwards, they dumped me and went to another adviser, presumably one who was prepared to do what they wanted. I have no idea how they got on with the new adviser but I hope they didn't lose too much of their savings. ( I'm not nasty enough to hope they lost the lot!)
I write this because it is an indication that even the best advised clients do not neccessarily understand what the adviser is doing for them nor what risk management is all about
Yes, educating the investing public is vital but it's hard and frustrating work.
On 3 November 2009 at 8:44 am Old risk Adviser said:
Interesting that so much of what is being written relates to investment - and quite properly so too.
But then, why does the all encompasing regulation rope in those who are solely risk writers?
On 4 December 2009 at 9:32 am Commissions: “Know me before you judge” - Phil's Blog said:
[...] 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 [...]
Commenting is closed

 

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China Construction Bank Special - 2.65 2.65 2.80
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First Credit Union Special 5.85 2.95 3.45 -
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HSBC Premier LVR > 80% - - - -
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HSBC Special - ▲2.25 - -
ICBC 3.69 2.25 2.35 2.65
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Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
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TSB Special 4.54 2.29 2.49 2.65
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
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Westpac Special - 2.29 2.69 2.79
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