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Call for Govt to come clean on intentions

If the Government wants to get rid of independent financial advice, it should stand up and say so, one adviser says.

Monday, April 14th 2014, 6:00AM 6 Comments

Robert Oddy, of SiFA, has been working on the group’s submissions to MBIE on the possibility of exemptions from the DIMS regime and to the FMA on its regulatory reporting requirements.

He said, given the direction that had been taken so far, it would be surprising if exemptions were allowed for DIMS providers.

The development of the rules seemed to have been driven by big banks and fund managers protecting their patch, he said. “They’ve done a better job of lobbying than the advisory community… If the government’s intention is to remove independent financial advice from the marketplace they should stand up and say so.”

The DIMS rules in their current form would require a hugely expensive remodelling of businesses, he said.

Advisers would have to decide whether they wanted to offer an “expanded budgeting service”, through limited financial planning, or go down the DIMS route with the expenses that would incur.

Oddy said regulation seemed to be one hit after the other and many advisers’ mental health was suffering. “Advisers are feeling higher levels of stress than at any time in the past, even during the global financial crisis and the Asian crisis before that. It’s a continuing tsunami of regulation although tsunamis at least have an end, this one keeps flowing.”

The Financial Advisers Act had prompted many to overhaul their businesses, and AML was also causing problems – as well as putting more requirements on consumers. “Some might opt out of advice and return to property investment because it’s much easier. The excessive levels of regulation far exceed the desired outcomes.”

Many advisers felt they were the politically expendable whipping boys of politicians who had to be seen to be doing something, he said.

“If we could get the roundabout to stop for a bit we could get back on our feet and develop practices to cope… that would be very gratefully received. We need a break from the onslaught and time to catch up.”

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Comments from our readers

On 15 April 2014 at 9:13 am Ally said:
Robert's comments are on the mark......Like any bureaucracy caught with its pants down, the FMA wants be seen "doing something" in response to the David Ross fiasco. DIMS was hardly on their radar screen pre-Ross but now they seem to regard DIMS providers as bogey-men who must be put out of business.
On 15 April 2014 at 12:32 pm Pragmatic said:
If financial advisors have any remote discretion over a client’s portfolio, then I believe that they should be treated as equals with funds managers and other entities with the same privileges. Aside from the administrative efficiency argument, I fail to see how the majority of the financial services industry is adequately equipped to make effective tactical investment decisions that requires the nimbleness of DIMS

I do agree with Roberts comments on the tsunami of regulations, and would encourage the Regulator to understand the industry that they are presiding over
On 16 April 2014 at 10:33 am John Berry said:
We need non-aligned financial advisers in NZ. Investors need them - as non-aligned means they can provide choice and are not tied to internally manufactured product. Large players in the market need them (without realising it) because competition and different business models improves the marketplace I hope our regulator recognises the value of non-aligned financial advisers.

As for DIMs - the "evil" being solved for is avoiding a repeat of Ross Asset Management. The Ross disaster involved non-existent assets and made up valuations. Solving this requires only 3 things (1) independent custody (2) independent pricing and valuation available directly to the investor and (3) a restriction that the custodian can only pay moneys direct to the investor’s personal bank account. Why has it become so complicated?
On 16 April 2014 at 12:57 pm CJM said:
"I fail to see how the majority of the financial services industry is adequately equipped to make effective tactical investment decisions that requires the nimbleness of DIMS."

This misses the point of DIMS.

Some clients cannot be bothered going through the pretence that if they are given a huge wodge of documents THEY can make an informed decision on where to invest their money.

They want someone else who has more skill than them, to make the decisions for them.

Why not just give it to some fund managers to do?

Well, you are still left with the problem of choosing which one(s) to use and when to change funds. Most fund managers go out of their way to make it clear they do not provide any advice.

I am astounded that the FMA does seem to want to drive DIMS out of the market (or at least restrict it the most conflicted large fund managers).

If anything I suspect NZ has too few DIMS. Too many "little old ladies" are being given complex (mostly butt-covering) "advice" and being expected to make decisions they really are in no position to make.

DIMS simply reflects that reality that many people have to find an advisor they trust and let them manage their money.
On 16 April 2014 at 1:23 pm Bill said:
Well said John Berry

1, 2 & 3 - that's what all advisers who use the Aegis platform have had in place all along

And in reply to Pragmatic, those advisers who use Aegis can make changes to portfolios 24/7 from anywhere in the world (with an internet connection) with excellent "nimbleness"

But many of us build portfolios using the best funds we can find

We leave the stock picking, forecasting and tactical tilts to the fully active fund managers that we use

When we operate this way, our clients have several very high levels of protection in place. DIMS will add absolutely nothing more in terms of protecting the mums-and-dads money
On 16 April 2014 at 4:33 pm Harrassed said:
Pragmatic, I take it that you think fundmanagers should have in-depth knowledge of each clients financial situation, goals and risk profile so they can tailor their portfolios to individual needs.

DIMS allows advisors to do this with minimal hassle to the client. The major losses in the GFC have been through fund managers such as the finance companies, those in the ANZ stable, NZ Funds stable and other fund managers like Forsyth Barr.

A reminder that all index funds under-perform the index as well as the majority of fund managers. So much for their superior tactical abilities. Despite my "inabilities" none of my clients lost money investing in any of that dross. Unfortunately the DIMS charade is likely to be the final nail. My clients may soon need to take their chances with fund managers directly - which apparently close to 80% of finance company investors did.

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