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No fairy tale ending

Friday, July 16th 2010, 8:53AM 2 Comments

by Philip Macalister

It’s not a good look when the head of an association representing an industry group has to walk. But Vance Arkinstall probably had little choice in the matter after charges were laid against in his role as a director of failed finance company Dominion. What has been the surprise is that it took a week between the two announcements (charges being laid and resignation) and that the resignation wasn’t immediate I note Chris Lee had a go at directors the other day. Here I agree with him to some degree. There are a number of directors out there with form and just seeing them being involved with a company is a warning sign to investors and advisers. I don’t, for a minute, put Arkinstall into that camp. I never understood why Arkinstall accepted a board position at Dominion Finance (I haven’t asked either). There was always the possibility it could be seen as a conflict of interest. Curiously you could argue that finance companies were the enemy, or at least fiercest competitors, fund managers (whom the ISI represent) faced. It seems to me that Arkinstall has become collateral damage in the finance company fallout. Only time (and a court case) will reveal the full story. Arkinstall’s resignation is a blow for the ISI. It is an association without a lot of profile and one which was in the process of change. Arkinstall was leading that process and had already done at lot at the ISI including getting it more streamlined and functional. During his time he succeeded in getting good engagement with officials, bureaucrats and politicians in Wellington. It’s the sort of stuff we don’t see, but is a critical for the industry when it comes to lobbying for change. I have no doubt Arkinstall has always had the best interests of the industry (including advisers) at heart. The timing of the move couldn’t be worse for the ISI in many ways. It has been in the news quite a bit this year advocating some changes. Readers of Good Returns will see the great debate going on about its “anti-churning” policy around life insurance. Also the ISI has announced that its members were going to introduce a voluntary code of practice and stop remunerating advisers on a commission basis for investment product sales. While the policy was promised sometime ago, details haven’t been revealed – yet. Maybe they will come before July 31 when Arkinstall steps down?
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Comments from our readers

On 16 July 2010 at 8:52 pm Forthright said:
I owe the Securities Commission an apology, in the past I have thought ill of them for not pursuing the sneaks and self centred Directors who occupied the chairs in our countries finance company board rooms. Make no mistake these Directors must ultimately shoulder the responsibility for destroying millions of dollars of investors wealth and if they have acted illegally then they must face the consequences in our High Courts, no matter who they are.

I remember in June 2006 the now Chairman of the Code Committee Ross Butler writing to all IFA members urging each member it was their individual responsibility to restore and maintain consumer confidence and ensure that we get a strong, vibrant, competitive and prudentially supervised finance company sector. I wonder how many IFA members heeded Mr Butler’s call and continued to support a sector with the rot well and truly entrenched in it’s core. Most Advisers would also recall the letters from every other finance company in NZ in June 2006 that thought it was solvent and wrote to every Adviser and Investor telling them it won’t happen to us due to our great history of only ever provisioning $1.28 in bad debts during the last 7 years and having so much profit, retained earnings and liquidity they could not possibly suffer Provincial Finance fate.

Most Advisers will also recall reading those memorandums signed by the finance company directors telling them there were no material matters which would change anything published in their latest registered prospectus. It is my opinion, it is against this background, many finance company Directors simply signed documents sincerely believing, what their executive teams had told them, was the true state of their company affairs. Ignorance of the law is a very flimsy defence to rely on when you are facing serious charges in the High Court several years later.

Congratulations to our statutory regulatory foot soldiers, you are after all, doing a good job. I am sure, in due course you will let us know what other miscreant finance company directors will be called to face justice in our High Courts.

I personally find it sad when someone who has contributed a great deal to the betterment of our insurance and savings sector, suffers the ignominy of facing criminal charges and must hand in his rifle and fall on his sword.
On 18 July 2010 at 3:31 pm Independent Observer said:
Well said 'Forthright'.

The challenge for the regulatory enforcers is to promptly deliver more scalps, so that the consumer can begin restoring their confidence in the financial services industry.

A useful hunting-ground is undoubtedly some of the Directors involved with finance companies, and the myriad of financial advisers who blindly supported them.
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