It's time for Gareth to shut up

Friday, July 23rd 2010, 4:50PM 12 Comments

by Philip Macalister

What planet is Gareth Morgan on? His rant, I mean article, in the NZ Herald this week attacking advisers is an odious, boring piece of copy which is best used to wrap up fish and chips. I wonder if it was timed to coincide with the Institute of Financial Advisers conference which I have been at this week. As it turned out it was published on the day the Code Committee and Commissioner of Financial Advisers, David Mayhew, addressed the conference. Morgan’s piece was a talking point of the conference. A common theme being here he goes again. One highly placed man in adviserland described it to me like this: “My eyes glazed over after the first couple of paragraphs.” “Gareth’s an unhappy man.” Sure some of Morgan’s points maybe valid, but not all of them. His claim that the Code Committee is subject to “industry capture” is plain wrong. This group has worked diligently to deal with some difficult and complex issues and it has listened to submissions from a wide range of people and organisations. The Code has to be approved by the Commissioner and also the Minister of Commerce. They won’t be signing it off, if it doesn’t meet the requirements of the Act. A huge amount of time and effort has been put into creating a set of minimum standards for advisers. Thousands of advisers have been working hard on meeting these new requirements which come into force next year. Why, oh why, do people like Morgan and Consumer go out of their way to build up this public perception that all financial advisers are bad? There are plenty of excellent and professional advisers helping New Zealanders. Using the Consumer Institute mystery shop of advisers as proof the sector is flawed is in itself flawed logic. The mystery shop has been discredited by Auckland University Director of Research and Policy Solutions Dr Michael Mintrom. The survey is like Morgan’s book he talked about, After the Panic. Full of errors. In fact his book was so inaccurate it had to be pulled off the shop shelves and fixed. If there is a problem, then it rests with product providers and investors themselves. There have been plenty of investments allowed into the market that have been duds and failed to deliver promised returns. Secondly, as I have said countless times, the majority of people who lost money in finance companies chose to make the investment themselves. They did not use intermediaries such as advisers. The main issue is here we have someone who is both an adviser and a fund manager criticising the adviser reforms. It seems there is only one good adviser in New Zealand – Gareth Morgan. The good thing is that once the Code is implemented Gareth will have to become an AFA. One of the items in the code is about good behaviour. Will it make Gareth shut up?
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Comments from our readers

On 23 July 2010 at 9:01 pm Mike Shaw said:
The President of the IFA recently said we shouldn’t use the I word (industry) and he would, insist we use the P word (profession). Nigel, the news is, we are not yet mature enough to do that, judging by Gareth’s comments, centred around he or she, should’ve, would’ve or could’ve, done this or that.

My wife reminded me of how a professional should act and pointed out to me how the Medical Profession go about addressing practices which have resulted in poor outcomes. The Nursing profession for example doesn’t focus on who is to blame, they look at all the factors which resulted in the poor outcome, so they can recognise what went wrong and change whatever, behaviours, environment or outside agency influence occurred to make sure of a better outcome next time.

Our industry is currently firmly entrenched in the blame game. We cast blame, hither, tither and yond, and completely forget what a professional should do in a similar situation. Why the heck don’t we make a cuppa tea, sit down and intelligently reflect on what went wrong and focus on what we can do better next time.

I don’t want to be reminded every time I read an article written by Gareth Morgan how we could’ve, should’ve or would’ve, Gareth we know we collectively stuffed up and now we are doing something about it. Unfortunately, presently as an industry, some of us are a million miles away from our collective professional responsibility of all focusing on the goal of "promoting the sound and efficient delivery of financial advice, and to encourage public confidence in the professionalism and integrity of financial advisers".

A case in point is the travesty of Gareth’s diatribe. Gareth is an intelligent articulate person, who damn well knows his utterances are doing zilch to restore public confidence in our profession. Don’t get me wrong Gareth, you make some very valid points, however these points are lost in the noise of your passionate pastime of putting the boot in, where it hurts and when it suits you.

I have got some advice for you Gareth, we have taken the first step in our long journey to make sure we are all competent to do what we say we do. The next steps in the process maybe focusing on how the regulators, product providers, trustees, administrators, research houses can do better at promoting the sound and efficient delivery of financial advice, and to encourage public confidence in the professionalism and integrity of financial advisers.

Gareth, you obviously have tremendous energy, passion and an awesome intellect, how about focusing more on how you can help to promote the sound and efficient delivery of financial advice, and to encourage public confidence in the professionalism and integrity of financial advisers.

How about starting with lobbying for rules around KiwiSaver performance and make it compulsory for all KiwiSaver providers to announce standardised quarterly return figures based on rolling 1, 2 & 3 years returns after all costs, fees, glossy brochure expenses and taxes.
On 24 July 2010 at 7:30 pm brent sheather said:
I thought Gareth's article was excellent and sent a copy of it to all my clients so there! As for the effect of Gareth's comments on the public's confidence in financial planners all I can say is I don't think his firm put any of its clients into finance company debentures. Hmmmm
On 24 July 2010 at 7:34 pm brent sheather said:
By the way Philip you're wrong in you're comments -virtually all the recommendations I saw from financial planners in the last 10 years were full of finance company debentures so don't get sucked in by people who tell you they were all mum and Dads. Idea nice dream but wrong!
On 25 July 2010 at 9:15 pm Independent Observer said:
Gareth’s book “After the Panic” was pulled off the shelves and reprinted as it mistakenly named a small number of Directors as being associated with receiverships. The rest of the book was basically factually correct – albeit riddled with Gareth’s own positioning statements.

Whilst I believe that Gareth Morgan’s published observations have been a reasonable account of the industry-that-was, it’s now time for these to cease. The recent ranting in the NZ Herald smacks of self-promotion and encourages the consumer to follow a mystical pied-piper into the sanctuary of his Kiwisaver entity.

Whilst the NZ financial services industry remains some way from being deemed a “profession”, it is recognizing past mistakes and (with the help of bumbling regulators), is doing its best to reinstate consumer confidence. In relation to the finance company debacle: it’s time for greedy investors, clumsy Directors and a benign regulator to shoulder some of the blame rather than continually pointing the finger at the advisory community.

Reinforcement of being a “profession” must come in the form of industry participants binding together to demonstrate a collaborative approach in solving the issues. It’s time for the chosen industry body (as we’re too small to have the number of industry bodies that currently exist) to stand up and promote the virtues of robust advice, and the perils that come with investing in celebrities.

The most significant industry threat is in the future of Kiwisaver (272 Kiwisaver schemes is way too many for 4m people), and the consumer reliance on slick marketing and advertorials. By my reckoning, most of these schemes are being operated on shoe-string budgets, by folks with little or no investment experience (as opposed to financial experience).

Imagine the industry carnage when a self-proclaimed-investment guru gets it massively wrong, or fails to accurately account for something… Unfortunately it’s an event that we all end up paying the price for.
On 27 July 2010 at 4:53 pm chc4me said:
Gareth Morgan is a clever magician - asking his audience to look in one direction while distracting their attention from his trickery - his own poor investment performance. The Morningstar Performance Survey June 2010 was published this week and I'm sure Mr Morgan will not want his followers to find out the real truth of how his company is failing investors. The Gareth Morgan Conservative fund ranks 15th out of 17 over a 2 year period and 13th out of 18 over 1 year. Not exactly restoring public confidence in advisers with returns like that!

The Gareth Morgan Balanced Fund was even worse, ranked 25th out of 26 for 2 years and over 1 year finished 27th out of 27 with a 2.84% return. The best fund for 1 year returned 17.40%, thats a pretty big difference and investors should be asking why the self proclaimed Guru is running so far behind the professionals.

According to the Morningstar survey, Gareth Morgan has one other Kiwisaver fund, "Growth" which has failed to live up to it's tag name with a -5.60% per year return over 2 years. In other words investors are actually down 11.2% in capital since starting. Ranked 25 out of 25 for 2 year performance and 26th out of 26th for 1 year. Hmmmm ....

No doubt Mr Morgan will throw mud at Morningstar and his perceived incompetence of their research qualities. To judge for yourself, please see the report at the link below:

http://www.morningstar.com.au/s/documents/kiwisaver_survey100726_f.pdf
On 1 August 2010 at 1:06 pm tony horton said:
As one person who has lost over $110,000 of his investment capital by taking the advice of one so called professional financial adviser and one who was considered a leading light in the IFA I find it incomprehensible that anyone can defend this 'INDUSTRY".

I do not consider myself either greedy or stupid having spent over 30 years as a Telecommunication Technician; bringing up 4 children, all of whom are decent, hard working adults, have been married to the same person for 39 years and is now retired in very comfortable circumstances. Over the years we have bought and sold 8 family homes in different parts of NZ always living well within our means and never had hire purchase or a credit card.

My biggest mistake was trust not stupidity. I was one of the lucky ones in that I realised what was happening and withdrew my investments in time to actually save about 85% of my capital.

Speaking personally there have been times when it has affected me greatly and has been extremely depressing to realise we could have gifted each of our children $25,000 in there lifes' journey. Again I was lucky because my wife never ever held it against me and was quite stoic about "not crying over spilt milk". But the feeling of guilt was very strong for a time but now we are living in a very pleasant part of NZ, have a freehold home and enjoying our retirement.

I would like to say at this point that at times its been because of people like Gareth Morgan, Chris Lee and other commentators of such ilk that have given some comfort to people like me when feeling utterly alone and powerless.

When I hear this so called industry complaining because Consumer has the timerity to even question its advice leaves me speechless with anger.Then you read about directors,trustees, auditors and those poor financial advisers saying "its not our fault,we did not know what was going on" makes me realise the average "joe blow' has very little chance of justice in this self serving world we live in.

I for one will never ever go near a financial adviser again and maybe my returns may not be as great BUT at least I know my money will be as safe as I can make it.
On 1 August 2010 at 1:16 pm tony horton said:
phil you are in denial
On 2 August 2010 at 9:21 am Philip said:
Tony, thanks for you post. I don't know the circumstances of your situation or what happened so it is hard to comment on those.
However, the point I am making is this. There are many good advisers in New Zealand and you can't go and label them all unprofessional and loaded with vested interests as Gareth does.
There are advisers who work on fees, and there are many advisers who didn't recommend the sort of products which failed.
Advisers can only work with the information that the product makers give them. The issue here is that advisers did what they thought was right given the information and research they had. The real issue rests with the people who "made" these investment products. In the past year we have seen many cases where they are now being found out. This includes finance companies, where directors misled investors and advisers. Likewise we have seen issues at the fund level.
The other point is that the large majority of investors who put money into failed finance companies did it off their own bat. They did not invest through an adviser.
I am sorry to hear that you lost money, but unfortunately you can't sheet all the blame to your adviser.
Philip
On 2 August 2010 at 1:57 pm Wally said:
How ironic that Tony says Chris Lee gave him comfort given that he recommended a whole host of finance companies that have gone under. How ironic the the Gareth Morgan groupies appear to have bottom quartile Kiwisaver investments. They are both masters of publicity, with some merits, but a propensity to undermine other advisers. Of course good news and happy clients are not newsworthy.

As an adviser, I had several people refuse to do business with me because I did not use finance companies. How frustrating that all my clients will now suffer due to the overly process orientated "accountability" now being thrust on all advisers.
On 4 August 2010 at 1:07 pm Tony Brazier said:
Welcome to the world of the real estate agent. All tarnished with the brush of a few. However, the future belongs to those who embrace what compliance change can offer and not to those who rake over the past of the unscrupulous.
On 20 August 2010 at 3:16 pm Dave said:
As an adviser who has been called 'selfish' and 'self serving' by clients when I suggested that they withdraw money from finance companies as the return of capital was more important than return on capital it was of little surprise, but no comfort when the finance companies started to fall over.
Advisers should rely on more than the opinion of the product providers when making a recommendation, which I personally do.

I am looking forward to the new FAA regime and all that it brings. The biggest challenge in all of this is changing the behaviours and attitudes of many advisers and customers alike.
On 23 August 2010 at 10:19 am Paul Hillier said:
Whilst regulatory changes usually, in general, benefit the market, I'm not sure Gareth is entirely ocnvinced...
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