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Whose interests are Consumer serving?

Friday, November 6th 2009, 9:36AM 12 Comments

by Philip Macalister

You really do have to wonder whose interests are being served by the Consumer survey of financial advisers released yesterday. The release had all the hallmarks of a well-orchestrated media campaign. Some key media were given special treatment and advance copies of the survey and interviews on radio and television were jacked up well before the official release. All common PR tactics to gain maximum exposure. What is hard to understand is why do such a survey of advisers now when the industry is on the verge of a new regulatory regime designed to help increase confidence in the sector? The survey does the total opposite. It’s like spending money to fix an old washing machine when you are in the process of buying a new one. Consumer is clearly using this to drive more sales of its magazine. As a publisher you know topics which will generate reader interest and sales. The womens’ magazines do this cynically each week with the celebs they put on the covers. We, too, know the sorts of topics which will generate reader interest and make sure we maximise readership from them. The Retirement Commission’s role is questionable too. Surely it should be helping improve the advice sector? Looking at its role, it was one of the funders of the survey and its response has been to use the survey to promote a new service it is about to launch. Have a read of its release here. It looks like they don’t want people to use advisers, rather they would rather New Zealanders become DIY investors using its website. Then there is the Securities Commission, who was another funder of the survey. Surely it too should be trying to move the sector forward rather than clobbering it? The IFA wasn’t a funder, in fact it appears to have not had much involvement other than nominating a couple of advisers for the survey panel. Indeed it hasn’t, to our knowledge, put out any statement. The president appears to be unavailable. The CEO, who you would expect to front, doesn’t. Instead it is left up to the chairman – who happens to be the husband of the Securities Commission boss Jane Diplock. The most interesting thing we have learnt from the survey is that Consumer chief executive Sue Chetwin lives with a sharebroker. Wonder what sort of advice she gets?
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Comments from our readers

On 6 November 2009 at 1:20 pm Richard James said:
The "survey" is a disgrace to research. The perversity of Consumer being critical of the lack of quality research and analysis by advisers in an article long on premeditated sensationalism and woefully short on empirical evidence defies belief.

That is not to roundly commend advisers. But any analysis must surely be research based, by non-competitors and those who actually understand advice and investment.
On 6 November 2009 at 2:37 pm Independent Observer said:
I have had the 'pleasure' of working alongside many of NZ's financial advisers over the past two decades, and intuitively believe that the findings of this Consumer survey are correct.

If you remove the journalistic / publishing sensationalism, and the drama of the expert panel, the underlying findings from this survey are most likely correct:

a). financial research in NZ is woefully inadequate
b). the concept of independence does not exist (with the exception of less than 6 financial advisers). By definition - most financial advisers place vested interest ahead of client interest (despite words to the contrary)
c). in its current form, the NZ financial advisory industry is self-destructing, with the findings of these sorts of surveys fueling an already nervous and un-trusting public opinion - it even made the front page of the NZ Herald!!!
d). many financial industry participants appear to have an eye on their exiting strategy, with little more than lip-service being paid in benefiting their clients

So what's a solution?
a). as a financial adviser start subscribing to quality research. It's available - you just have to look for it
b). begin to distance yourself from an industry body that appears incapable of defending its own, or even delivering a value proporsition
c). develop a billing structure that does not rely upon third parties - ie: a billing structure that is supported by a robust value proposition, and zero-product alliances - you get paid for your skills, not for product placement
d). as an industry participant, accept that you may just be at fault and begin to actively search for new solutions (rather than blaming the survey outcomes on the guy next door)

My forecasts for the next 5 years:
1. banks will abandon the provision of rigorous wealth management - too hard, too expensive, a regulatory nightmare, adds very little to their bottom-line, does not lower their costs of borrowing
2. many industry participants will be suckered into aligned dealer-groups offering to solve all of the problem, yet delivering very little. The bad guys are still roaming the industry - albeit with new websites, company names, and different marketing materials
3. many industry participants will actively pursue exit strategies only to discover that there are very few cheque-books seeking to purchase poorly run proprietorships. It is questionable whether financial advisers will actually be able to exchange their client relationships for money... possibly needing to simply close their doors are retire when it's all over
4. someone will get it right by designing a fully corporatised, client-centric robust advisory model that installs confidence back into consumers and professional referrers
5. oh - and the insurance companies will gravitate back to the days of agency, where salesman unashamably sell their principal's products and services instead of professing to be "independent"

Bottom line: good quality financial planning will only be affordable for the rich segment of the community, with ordinary mums & dads being victims of pure sales.
On 6 November 2009 at 8:05 pm Pete said:
Consumer is clearly using this to drive more sales of its magazine.

Like this site does, you mean?
On 6 November 2009 at 9:24 pm Philip said:
Pete: Not quite. You get information for free here. I'm happy to take your money if you're offering to pay for a sub!
Secondly, we aren't the protagonists here. Merely reporting on things and allowing readers to comment.
On 8 November 2009 at 8:53 am Independent Observer said:
Following on from my previous comments, I wanted to stress-test those financial advisers who firmly believe that they are different. My challenge is that you conduct an "anonymous" survey of your clients to determine what they truly believe.

A recent study by Prince and Assoc. in the US of investors with $1 million or more in investable assets discovered:

a). 81% of the respondents planned to take money away from their current adviser
b). 86% of the respondents planned to tell others to AVOID their adviser
c). 2% of the respondents plan to recommend their firm to other investors

It may also be worth taking a look at the Forbes article entitled "The market for financial advice is in turmoil" for further thoughts on the future of our industry.

Without wanting to pre-empt any findings from your own surveys, I'm picking that your clients are probably more disgruntled than they are prepared to tell you in person, many are looking to unbundle their relationship with you in the near future, many view your services as non-essential, many are unhappy with the over-weighting of managed funds to achieve their financial outcomes, and most of those surveyed are quickly becoming aware of the cost/benefit of using a financial adviser. In other words - your trusted clients are probably more simple consumers of financial advice than you would like to think.

Sorry to be the bearer of bad news - but it's time that the financial service industry stopped living in the false belief that past behaviours are ok for the future.
On 9 November 2009 at 10:52 am Big is not better said:
I have been watching this debate with interest. For me consumer are not too far off the mark, and I can only agree with Independent Observer. For me however, the main culprits of this poor advice are the large corporates for the following reasons :

Their advisers are compelled to use related managed funds which they have a vested interest in, regardless of whether they are best of breed or not
Secondly, the only investment vehicle that is offered is the actively managed fund because of all the profit centres it offers the corporates
Thirdly, most clients are unaware of the true cost of actively managed funds
Lastly, there is a definite conflict of interest between the interests of the investor and the shareholders of the large parent companies.

In this country unfortunately, independent best advice is sorely lacking, and for my money clients should rather be seeking smaller focussed advisers that are not tied in any way, shape or form to any investment solution and who are able to deliver diversified solutions that are cost effective and simple. I am not saying that there is not a place for managed funds, but in my book direct blue chip shares and bonds, exchange traded funds and limited managed funds are the way to go.
On 9 November 2009 at 12:29 pm chc said:
The Consumer report is a warning for advisers, regardless of size or ties, that the documented plans supplied to clients are not as comprehensive as expected. I don't see the Consumer article as a debate about managed funds or ETFs nor any other product for that matter. The debate is the justification of advice, the reporting of fees and the disclosure of relationships. While many will say that the Consumer article is rubbish, those folk are missing the point. The point is Financial Advisers need to improve - in every aspect.

If in doubt, sit down and dissect one of your own plans, even better have someone else do it (a colleague or an external audit). The report should be viewed as a learning experience for all advisers including independents and corporates with the aim to raise professional standards.
On 9 November 2009 at 3:40 pm Grumpy said:
"What is hard to understand is why do such a survey of advisers now when the industry is on the verge of a new regulatory regime designed to help increase confidence in the sector?"

I, for one, would like to get a better idea of who was rubbish before the new regulatory regime smooths out some of the problems in the industry. I have a long memory, and just because regulations force a company to clean up their act, doesn't mean I want to use them now.

Take for instance the ANZ/ING issue. If the new regulations stop what many people believe was a mis-sold product being sold, that is great. BUT, I'm not using them now, knowing what they were before.

Know who they are and don't forgive them easily, just because they can't now do what they once did . . .
On 9 November 2009 at 4:43 pm Independent Observer said:
Grumpy - your comments are spot-on. Many of the issues that got the financial services industry into where it is are still with us, and many of the players involved have remained. Without naming names (as that would be defamatory), some clues to assist in the pursuit of industry mediocrity include:

1. industry bodies that collect fees and provide little (if anything) in return for their Members
2. research houses that have a limited ability to appraise the historic outcomes of those managed fund able to pay rating fees... a bit like driving your car by staring at the rear-vision mirror
3. industry training/dealership/research entities with ties to industry manufacturers, who continue to claim independence despite reporting lines &/or links back to their 'mother-ships'
4. those claiming to be financial advisers who remain ignorant of how a CDO differs from a hedge fund from a passive fund that charges active-fees... etc etc
5. again - those claiming to be financial advisers who believe that risk profiling can be achieved in 3 questions or less - or is a counter-terrorism initiative

Grump: you have a right to be grumpy, because the NZ financial services industry (by and large) is ignorant of what changes are required, and are lining up to repeat their actions that have got the industry to where it is today... If 95% of the financial services industry are rubbish, and the industry contains 5,000 financial advisers - then (by definition) there are less than 250 (probably much less) who are providing a fair-deal for their clients.
On 10 November 2009 at 9:34 am Peter said:
The complaints about industry bodies miss the point that the current onces barely have the size and thus subscriptions to provide anything other than a CEO and a bare bones office, other that that it really is up to the members to activtiely participate to make the Association or 'Institute' worthwhile.

Get involved in your branch.
On 15 November 2009 at 6:12 pm Red Dog The Pirate Guy said:
Just phoned a client who had good news on Friday,namely a letter form ANZ agreeing to give him all his capital back from one of the ING frozen funds.
Unfortunately he said a neigbour who invested with an ING franchise was not so recourse to the ombudsman.
My comment was that his neighbour needs to get hold of a few ANZ decisions and geta litigation lawyer to wave them at his adviser.
As for the quality of financial advice in this country...the smartest people have been those who have acquired a portfolio of rental properties at a reasonable time.
On 17 November 2009 at 4:34 pm Johnson said:
Consumer is the GOD???
Commenting is closed



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