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'Average Kiwis missing out on advice'

Unless you’re very wealthy, or struggling to get by, it is very difficult to get independent financial advice in New Zealand, one researcher says.

Thursday, May 8th 2014, 6:00AM 5 Comments

by Susan Edmunds

Aaron Gilbert, a senior lecturer in AUT’s business school, and a fellow at the Auckland Centre for Financial Research, said there was a big gap.

“If you’re extremely wealthy or making a complete hash of it, there’s plenty of advice. But if you’re sitting with less than a couple of hundred thousand to invest, getting good investment advice is extremely difficult.”

He said banks would provide some advice. “But they have a vested interest in the advice they give. Outside that, financial advisers are not terribly interested in people who are not bringing a reasonable amount to the table.”

He said it was a tricky issue to deal with.

The Retirement Commission has identified the use of financial advisers as something that it wants to increase. In its National Strategy for Financial Literacy, it says a major challenge will be that New Zealanders are not accustomed to paying for financial advice. It says consumer trust in financial advisers needs to improve.

Its goal is for 50% more people to be using qualified financial advisers in 2025. It says only about 15% use an adviser at present.

Gilbert said that was a good aim. “A lot of people could definitely use these sorts of services for broadening how they deal with financial matters. But the real challenge is to increase it by 50% without bringing in the perverse incentives we’ve had in the past.”

He said New Zealanders were hesitant to pay for advice. “How do you get people to value it enough to pay? Kiwis are very reluctant to pay for advice. Until they’re more willing to value independent advice I’m not sure how advisers can cater for more of that market.”

If clients were not going to pay, advisers would have to recoup their costs elsewhere. “One problem that came up with the collapse of finance companies was the use of kickbacks and commissions. If financial advisers can’t charge the clients, they have to pay for their services somehow.”

« DIYers shun advice: ResearchIFA working on pro-bono offering »

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Comments from our readers

On 8 May 2014 at 6:36 am Colson said:
There are actually a number of 'advice' models operating within KiwiSaver (which cater to a variety of member needs). More and more KiwiSaver members can get quality 'in-house' planning and advice from providers which in essence is very similar to 'independent' advice. DIY members make their own decisions and select from the many KiwiSaver schemes while others can get online assistance and guidance from the many sources available. There is enough 'advice' variety within KiwiSaver for everyone. Certain KiwiSaver investment solutions, such as lifecylce programs, are less advice intensive and that works for many members. Truly independent financial advice, particularly in terms of independent provider selection, is very rare these days. Finally, if advisers - like any other provider of a service - would like more market share and more clients all they need to do is make their service more affordable to the masses, surely nobody is 'missing out' on advice if advisers cannot price it correctly in the first place.
On 8 May 2014 at 9:09 am Brent Sheather said:
This is not surprising. Taking new clients is risky. Anyone who looks even slightly stupid is a risk. I’m not taking any new clients unless they have at least a couple of million and I think this situation is only going to get worse as the existing advisors age.

I can’t see why anyone would bother advising on KiwiSaver and in any case the odds are Mum and Dad aren’t going to get their money back when they retire but instead be compelled to buy a ridiculously expensive annuity. The industry has gone quiet on this of late but you know it is coming.

Brent Sheather
On 9 May 2014 at 8:33 am Anton said:
I have two previous experiences of dealing with financial advisers.

The first in 2000. Due to family circumstances I found myself owning a rental property. Knowing nothing about rental properties I went to a financial adviser who told me the New Plymouth property market was dead and always would be "sell the property and put it into our managed funds" he told me. So I sold just before the property boom started. I later realised that rental property was achieving a 15% return. (unheard of now)

About 6 years later I tried again, going to another financial adviser after coming into a bit of money. He advised and organised for all the money to be invested in finance companies!!

Needless to say after these experience I will never never go to another financial adviser ever again.
On 9 May 2014 at 3:49 pm Julian Lingard said:
I am an adviser and more than happy to give advice to people with less than a couple of hundred thousand to invest. i have to agree however a large part of the problem is getting people to commit to paying a fee for the advice. It has been my experience that the average Joe Bloggs wants the advice for free and this is just not a sustainable business model for anybody.
On 14 May 2014 at 10:35 am John Milner said:
Anton, sounds like you won't ever need to seek advice from another adviser again as you don't appear to have any money left. If this is the case, I am truely sorry for you. However, I think it's time you should look in the mirror and ask yourself what role did you play in all of this. You need to take some responsibility and own this yourself. Did you request written advice? If so, have you followed this up through legal channels? If not, you really have to ask yourself who is ultimately to blame. If you would like to follow this up, look me up.

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