It is interesting to see how BNZ has re-entered the financial adviser market for the distribution of home loans and how quickly it now accounts for 40% of the home loans they issue. That has reversed the gradual slide in BNZ market share. It is also contributing evidence to conjectures on the strength of the advised channel:
Advisers are able to handle complexity quite well, which helps consumers worried by increasingly complex rules in the home loan area. Those rules keep changing too, as the Reserve Bank struggles with ways to rein in a hot residential property market while keeping interest rates low.
Third-party advisers represent a quick way to reach a lot of customers. While they can be expensive in a variable cost basis they are cheap in a capital cost basis. The added distribution must add up to the equivalent of a lot of branches that would have had to be equipped and staffed before a single loan could be sold.
Of course, regular readers will know that we don't see this as advisers versus direct. Increasing complexity and the attractions of variable cost channels are forces unlikely to change, so the adviser channel is likely to remain important. We see this as a necessarily multi-channel world. Keep the branches, keep your online sites, develop more, and keep distributing through advisers too, because quite a lot of consumers like advice.
You should talk with a financial adviser if you are 'stuck' on a money issue, that's a good place to start.
Most financial advisers deal with clients who are already wealthy, but a few do excellent plans to help people with high incomes, but who are in a mess - or stuck - somehow. If you are on a low income and you are struggling the best place to start is with a budget adviser, you can find one by searching online for a member of the New Zealand Federation of Budget Advisers, or visiting a citizens advice bureau.
You have some big goals and you think its worth planning.
It is always worth planning. Anything that takes more effort than checking if you have enough cash in your wallet right now probably deserves a plan. If you are saving for a house, planning on starting your own business, looking at retirement, that big goal up ahead whatever it is, is worth planning for. You will not know how useful the plan is until you sit down and write it. You can get a book and read some self-help stuff online, but a real human asking you hard questions and holding you accountable for a proper answer, that can create real change in your life - and that's what you want really isn't it?
Things just changed in a big way
Sometimes you aren't looking forward to a change, change just barged into your life: someone died, you get married, a child comes into your life earlier than you thought. What do we do now? You can get some advice. Getting good financial advice can help take the breathless panic out of a sudden change, or just expand your range of options if you are locked into thinking about something just one way. Getting someone to think creatively about your situation can help you a great deal.
You unexpectedly receive a large sum of money
An inheritance, a bigger bonus than you thought, a tax refund. A very large sum is one year's salary or more. These can be life-changing: accelerating you towards your goals. But they can so easily be wasted. A few month's salary applied to your home loan could tip the balance enough to help you get debt free years earlier than planned. Or be frittered away on a slightly newer car. Of course, if you need the car more than anything else, fine, but maybe take advice?
You need to think about what happens when you are gone
When our favourite wizard knew he was about to die it was a great relief Albus Dumbledore turned up - even if that incarnation was only in Harry's mind. A plan for when you die - a will, documents organised, an executor, a list of wishes, and so on: these can provide that wise counsel to your loved ones at just the right time.
According to Kevin Smee, in this article on NZ Herald these are the top five reasons for needing a 'family board' - Smee says:"Kiwis need to take a fresh approach to managing their family finances and the professionals who advise them need to get on board, literally. Kiwi families need a 'family board'. Businesses, charities and various government organisations are typically overseen by a board of directors, who are responsible to shareholders and/or other stakeholders. These directors hopefully bring a mix of professional skills and experience that enables them to govern effectively and protect the interests of the organisation. The same principle can, and should, be applied to the family financial situation." In effect, Kevin is advocating that families have the advice of a group of professionals to help them make better financial decisions, noting that poor financial arrangements can destroy families.
The Commission for Financial Capability appeared to link consumer confusion over where to seek for advice the lack of growth in 'non-bank' advice. But the comments clearly touched a nerve with many advisers arguing strongly that the cause for confusion was that too many people were labelled 'advisers' as Simon Hassan wrote in comments on the story. Given that proposals to revise the Financial Advisers Act include a narrowing of the category of people that may use the word 'adviser' I think it is fair to say that MBIE agrees with advisers.
One of the possible outcomes of the proposed changes to the Financial Advisers Act is an increase in average business size. In an article by Jenée Tibshraeny at interest.co.nz quotes Richard Klipin contemplating the rise of multi-disciplinary advice businesses.
The proposed changes make this more likely through a number of mechanisms. While a lot of attention is focused on the licensing of the Financial Advice Business, "...licensing would be required at the firm level (for the avoidance of doubt, a sole-trader is considered a firm) " - p.62 this is not the main issue. If there were no difference in either cost or requirements for registering as a sole trader then there would be no real drive to form advice businesses.
But I think Richard Klipin is right, and there will be a strong drive.
That push is mainly provided through increasing the requirements on RFAs. One part of Coase's theory of the firm holds that as fixed costs rise then average business size rises. Another argues that if larger organisations can reduce error rates then they are more attractive. Both those factors could explain increasing scale in financial advice businesses.
Will such factors increase? The FMA fee for registration is only a small factor. The requirement for, say, increased education is a much bigger contribution to the new cost model. Even bigger than that are the business changes required to provide detailed compliant personalised advice in an efficient way. That usually requires good information technology, regularly updated and maintained. That fixed cost will push many advisers to contemplate participation in the kinds of advice businesses Klipin mentions in the article. In addition, larger organisations with good processes for ensuring compliant advice will have smaller error rates and may apply lessons learned more quickly to more advisers.
Theoretical models are buttressed by current experience. Several commenters are already pointing out the similarity between the FAA review proposals and the existing Australian regime. That approach led to larger businesses in Australia. In New Zealand the current FAA has already led to larger businesses - consolidation has been ongoing across the insurance sector. To some extent cost sharing has explained the rise of our broker groups, and recently professional associations are joining the movement.
I spoke with Rod Severn this morning about the plans that the PAA and IFA now have to create a new representative body.
I think this is a good idea, partly, because New Zealand is a bit small for 18 different organisations to cover the interests of consumers, product providers and advisers. I think the interests of providing advice are sufficiently different from those others that I expect some division will remain. But that still leaves eight. To save space I shall use only their initials, in no particular order they are: SIA, IFA, PAA, SIFA, AAA, NZFAA, INFINZ, and IBANZ. Even between them, by some measures, they do not come close to having as members a majority of people that offer financial advice (using the broadest definition of that) because they don’t include most of the roughly 25,000 people that work in QFEs.
A new association bringing together the members of two of the largest would be a good start in building a bigger brand that may bring more members, more professionalism, and more consumer trust. More shared resources might allow for all sorts of things: more specialist resources to devote to different advice processes – the unique challenges presented by giving effective insurance advice is my area of interest, of course. As a member (associate) of the PAA I want to see how that can be enabled.
It is not given that this will happen. Members must decide to make it happen. Rod told me that the next steps in taking these proposals to members of both organisations are as follows:
Reports from the Chairs of both organisations, Bruce Cortesi and Michael Dowling Meetings in 12 centres around New Zealand to allow discussion A special general meeting in July
Here is a YouTube video released by IFA and PAA about their recent announcement.