[Weekly Wrap] Why don't Kiwis like advisers?

Here is my 10 cents on this topic. Firstly our profession has been hugely tarnished by all people that put their clients into finance company debentures … that is why we are afflicted with all these new laws in much the same way that 9/11 stuffed up travelling. Historically CPD has made advice worse rather than better because as we all know it is frequently sponsored by the providers of esoteric, high cost, fashionable funds appropriate for no one.

The industry needs to look to pension funds to see what best practice looks like and get total annual fees including monitoring, fund management, platforms etc, down to 0.5% pa and eliminate commission. That will see many of the deadbeats leave the industry, allow the inclusion of genuinely low risk assets in portfolios and ultimately deliver a good deal to retail.

By the way it would have been good for the Horizon research to name some names although we all know who they are and if you don’t read Gareth’s book “After the Panic”.

Regards
Brent

Never one to let the facts get in the way of a distorted perspective, it’s worth noting that:
Of the circa $10bn of monies lost via finance companies, circa $2bn was "advised", with the majority of investment originating from direct placement

Whilst this doesn't protect the scores of advisers who did allocate to finance companies, it's important not to blame them entirely (the investor needs to shoulder some of the responsibility)

Not all advisers supported finance companies, with some relying on external research / their own abilities to read and understand balance sheets

Anecdotal evidence suggests that only a handful of advisers allocated to finance companies for personal gain, with the majority doing so for what they believed as genuine investment reasons

The industry does not need to look at pension funds - as their time horizons, investment objectives and philosophies are significantly different to mum & dad investors (however if you do happen to review a recent McKinsey Report of pension funds, you will notice that a growing proportion are allocating to relatively higher-priced ‘alternative’ investments, with the expectation of growth in these allocations going forward).

Fees are not the single most important item to review when appraising an investment. I would urge investors to look at the dramatic growth of ETFs (with low fees attracting much of the $3Tr of funds) and the various global warnings (Bank of International Settlements and Financial Stability Board) around these investment vehicles and their stability.

Brent, is your 0.5% figure the total cost to the client including underlying fund manager costs, custody, and financial advisor fees (including all rebates/brokerage they earn)?

If so, what fee are you assuming the advisor would get?

hi cjm,the 0.5% is the sum total of all annual charges excluding fees to trade the portfolio and obviously to set up the portfolio.its what we achieve for 500k portfolios and includes about 25 basis points to us to manage it.independent advisor I don't know where you get yr data from but your comment that"the majority doing because they believed as genuine investment reasons" absolutely supports the idea we should look at pension funds. I did just that and we had no exposure.yr scare mongering re etfs is typical of high cost advisers/fund managers...change is coming and the dinosaurs will be saying bye bye.

@brentsheather The growing level of ETF "scaremongering" is coming from reputable global watchdogs and commentators. I'm just the messenger.

Independent Observer. your anecdotal evidence suggests "only" $2bn of funds lost were under advice!! surely this is way too much in itself. I have some anecdotal evidence myself from the portfolios I saw that contained finance company debentures that suggests that greatest representation of debentures was in finance companies that paid the highest commissions. Also, I think if you actually read carefully the BIS and FSB reports you might find their comments were directed at products such as leveraged ETFs. None of these are listed in NZ but you can buy them through your local financial planner.

Graeme - I agree that $2bn of finance co loss was $2bn too much. The point was that it wasn't just financial advisers to blame.

The various reports (BIS & FSB) identify many differing concerns surrounding the phenomenal growth of ETFs – not just the leveraged ones. Worth reading the full reports if you have time.

Clearly the average investor is unable to determine what if any value an adviser offers and how much that costs. Hardly surprising given the lack of transparency, mixed value propositions and the fact that we are not selling widgets .... there is often just as much value in not doing something and success may need to be measured over several different objectives and timeframes.

As an industry we can hardly expect to garner trust if we cannot clearly promote our offer and demonstrate value. This issue will always be ensuring apples with apples comparisons. For example Brent is happy to offer his administration services for 25bp. Clients can decide to use those or DIY themsleves. Other clients might prefer a broader advice proposition and be happy pay more.