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Smart Payout

The Treasury Announcement about South Canterbury Finance is very politically astute - and is modelled on the approach taken with retail investors with Northern Rock. Essentially, whatever the rules of the payout scheme - doesn't matter - everyone gets their money. Which will be a great releif to lots of people - and removes the spectre of endless haggling in the media by people who might have lost out.

Reader Feedback on South Canterbury Finance

One regular reader popped this note to me:

As the taxpayer is already guaranteeing a majority of the deposits held by SCF, rather than a simple “Yes” or “No” to a government bailout, shouldn’t the correct answer be whatever in best judgment will limit or minimise the liability to all of us as taxpayers?

True enough - if a bailout were to result in lower payouts overall (bailout versus payments to investors and depositors as a result of the guarantee scheme) then that would be a valuable saving.

I'm a taxpayer too ;-)

There are three possible outcomes; bailout, workout, or failure.

If a 'bailout' were the only answer to failure, and deemed to be preferable to allowing failure, then as a taxpayer I would also have a number of conditions - and one would be that the current shareholders would suffer losses as if the firm had gone bust - because moral hazard is another cost which has to be considered. Of course, we may yet all be surprised and SCF may work it's way out of difficulty on it's own - and I sincerely hope they do. Or then again - we may find that failure is inevitable and the guarantee scheme must operate - perhaps with some supplementary measures to avoid a local credit crunch.

Finally it brings us back to questions for government. We've suffered a bad financial crisis - worse than Australia has, for example. Now, why was this? Do we have the tools to prevent it happening again? Or was it like a freak wave - and nothing could prevent it and so no change is required? Or did we have all the right tools but we were asleep on the job?

Devilish Details of Compliance

While more interested in the strategic implications of compliance, just recently some questions have been asked by a regular reader which prompts me to return to some of the detail of the implementation:

Bear in mind that the disclosure requirements of the AFA Code are not exhaustive - simply put, these are Code requirements, but under and will potentially add to the statutory regulatory disclosure requirements currently being formulated under the Financial Advisers Act, Sections 21-31, which will apply to RFAs, AFAs and QFEs. These statutory disclosure regulations are yet to be promulgated. 

Advisers are discovering that they may have to register themselves, and perhaps even several entities depending on how comlicated their corporate structures are. As the law stands, if the company is an FSP it must be registered as a FSP – irrespective of whether there is one shareholder / adviser or 100, albeit we understand from a recent presentation from one of the dispute resolution providers that an approach may be in train with government seeking some relief for sole traders operating through a company such that only one has to register (but don’t hold your breath for an outcome.)

There is a form of relief for dispute resolution scheme membership such that it is sufficient that only the corporate entity belong and the employee(s) is/are covered, albeit the costs will likely reflect the number of adviser employees. But that is membership of the disputes scheme, not registration. During our recent PAA road-show we dealt with a number of more complicated structures which might require several registrations – so the solution may be for advisers to simplify some structures.

Fantasy Economics

There is a hangover-like regret to be found in the columns of many commentators. At some stage most of us have held our heads in our hands murmuring quietly "If only I hadn't started on the Tequila". This is almost precisely the tone of comment to be found here: Paul Holmes plays fantasy economics. Roughly speaking the script runs something like "If only we'd kept compulsory super"...

Whether or not we would have become a kind of pacific rim 'tiger' is anyone's guess. But it is also quite beside the point. The only question worth asking is "what do we do now?" Because savings reduce the size of the economy in the short term, putting in place a big compulsory scheme right now might be the worst thing we could do. Putting one in place next year or the year after might be a great idea (although I am not so sure) but it's a decision that will have to be made based on what's happening now and in the future. Not what didn't happen yesterday.