[The Wrap] Things returning to normal

It feels as though things are starting to return to some normality - other than a few bombshell announcements. For the past couple of weeks my Wrap has failed to see the light of day; partly as I was not particularly happy with them and where they were going. Today is different.

Friday, May 29th 2020, 6:34PM 2 Comments

by Philip Macalister

Looking back at this week a debate on roboadvice has restarted (and nice to see the comments on this article).

The FMA is in the headlines after sanctioning an adviserIt seems the adviser, who was an AFA, did something dumb; sending an email to all his clients telling them to shift to conservative funds. 

The FMA has chosen not to name this adviser, essentially because they co-operated with the regulator. Two interesting points to consider. If this AFA was in someone's FAP under the new, delayed, laws how would his/her FAP stop this sort of thing from happening?

Secondly, there is a valid question for fund managers who use advisers. All these firms are asking more and more questions around how advisers represent products from fund managers (this is even more extreme in the mortgage space where banks are currently drilling into, and want to see, the advice being given by people who are essentially their agents).

If I was a manager and this adviser was using my funds I'd want to know about it. 

I heard a story this week which shows how hard it was for managers to assess advisers. One was in Dunedin having meeting with prospective adviser partners. The last meeting of the day was with Ponzi-scheme operator Barry Kloogh. On his way back to base the fund manager rep was assessing their meetings and felt of all of them Kloogh was the best prospect.

Low and behold three weeks later Kloogh was exposed as a ponzi scheme operator.

If anything this shows how hard it is to "regulate" a sector like financial advice. 

As for bombshells, yesterday's was totally unexpected. To get the news Nadine Tereora was stepping down as chief executive at Fidelity Life is not something many people saw coming. And to find out today was her last day was equally a surprise. 

A lot has happened at Fidelity Life in the nearly four years she has been in the top job. 

One of the return to normal things this week was the Reserve Bank having yet another go at the life insurance sector. Its six-monthly financial stability report seemed to suggest life companies were in trouble and a couple had been asked to increase their solvency levels.

However, on questioning the Reserve Bank could not recall how many companies had been asked to increase their solvency levels.

Questioning also revealed the regulator thought the sector was strong and in good shape. Rather its comments were around making sure the companies were well-positioned in the future.

It does leave the unanswered question; why did the NZ Super Fund pour millions of dollars of capital into Fidelity Life when the now governor of the RBNZ was running NZ Super? Likewise, Fidelity has proudly tied itself to a commission-funded adviser distribution model, but now the governor/ ex-NZ Super boss is highly critical of this model.

As I said it seems some normality has returned to financial services.


Tags: Opinion

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Comments from our readers

On 2 June 2020 at 9:25 am Elephant1 said:
Interesting , reaction to this adviser, and their recommendation to zero on a Conservative Fund. For 12 years the FMA , has quietly sat and allowed the kiwisaver default suppliers to only recommend Conservative Funds. So now the industry will expect , the FMA to show us the strong condemnation they have made over this investment choice.Also the rigorous compliance checks they are making on the default managers. If they admonish this individual , and make it public they must make public their own efforts.
On 2 June 2020 at 5:36 pm All hat no cattle said:
Dont hold your breath for any such "condemnation". Why would they? Doesnt the default fund theory prove itself in a crash? These savers did not participate in the drop (then the partial correction since).
That they missed out on a decade of gains, or that the long-term average return is lower, is immaterial.
And that they don't generally understand any of that because of poor financial literacy, is also (sadly) regarded as further supporting the default theory, not a problem that must be addressed.

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