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Adviser Anger over Regulation

There is a similarity in argument about reducing the legal blood-alcohol thresh-hold and the way many financial advisers feel about regulation.

If you are in any doubt about the anger and frustration that many financial planners have towards regulation just sit down and read the comments threads on recent goodreturns articles about the recent statements from the Securities Commission. These pretty predictable comments exhorting advisers to hurry up and become AFAs are being attacked in the comments sections pretty sharply - with comments varying as they do from those that are well informed, to those that a just angry.

I feel that it is important to remind the reader than in discussing some of those feeling here I am, in this post, deliberately choosing to not evaluate those views. I'm just sharing them and exploring their underlying rationale.

To summarise heavily, the adviser's charge sheet against the framers of regulation is that 

1. It fails to capture the 'true' baddies (real estate agents, companies that sold apartments that were never built, property coaches, defunct finance companies, their trustees, etc.) - and the news is that they seem to have 'got off' scot free.

2. The Securities Commission should have done a better job of policing these folk, so it's at least partly their fault

3. Product providers that let down advisers with poor product, over-optimistic risk assessments, etc.

4. The rules don't recognise the 'good' planners / advisers sufficiently - including the lack of recognition for experience etc.

5. Various other kinds of advisers have been let off the hook - with broader exemptions for real estate, legal, and accounting than were originally envisaged.

I can't think of a single sector that was involved in the Global Financial Crisis that has come through untouched by some law change - no matter how innocent a bystander it might have been (think the revisions to prudential supervision for life companies) - but that doesn't impress those on the comment thread. Even the Securities Commission will go through its own upheaval as it becomes part of the new Financial Markets Authority. But today is not the day for arguing against these claims. Consider briefly, for balance, the kernel of truth within them - it's wise to do that.

An oft-quoted illustration is that of the billions lost in finance companies between 2/3rds and 3/4qtrs were direct investments - not handled by advisers at all.

This is where the similarity with the blood alcohol level change comes in. Setting aside outright shysters, I am also quite certain that plenty of slightly messy financial advice has been given. Call this the equivalent of the driver that hops in his car after four drinks on a Friday night. He's damned grumpy about the proposed reduction to two drinks -- although that would certainly save lives, he makes a valid point when he shows us the stats that virtually all the deaths are caused by drivers that are well over the current legal limit.

Finally, a brief aside on the future. The weight of compliance and risk on adviser shoulders now is such that alternatives are looking good. Although QFEs look like being less popular than originally thought a solution that is much more popular than originally envisaged is the 'information only' sales process. No advice here. This will receive more attention. QFEs may yet gain popularity too. RFA status has received a huge boost. Perhaps all those 'missing' AFA applications are from people who may just choose to work in an alternative way. Perhaps what we are seeing is the reduction in the number of advisers that was forecast.


Advisers not listening?

It really could be that there are the better part of 3,500 advisers who need to become AFAs that aren't going to make it on time.I suspect that number is too high, but if I had to bet, I'd say it was mostly (say 1,800) that should be AFAs that won't make it on time. I am completely happy with Michael Frampton's "Not listening" call - he's got to shout loud, so that later no-one can say they weren't told. However, this compliance hole leaves two questions worth exploring.

So what are the consequences for those advisers?

Well, at worst they could carry on as they are and end up practising illegally. Let's face it, some will do that. I don't want them to, and I hope they stop practising or get into compliance as soon as possible.

However, I suspect that many will not do that - they will opt for a legal third path: they may avoid giving investment planning advice and focus on category 2 products in their range while they 'catch up' over the course of 2011. Provided they do not stray into giving advice on category 1 products or investment planning, then they will be Okay.

What about the other advisers?

Well, the balance of the 3,500 may simply not exist, or they may be planning not to be advisers at all. They may have done category 1 business but be planning not to achieve AFA status because they plan to do no more in the future. You see, this is the moment of truth when a number of advisers look hard at their business and make some choices. This is what was meant when we talked - years ago - about the number of advisers in the market falling. We always expected that increasing the fixed costs (and I repeat, the financial dimension of those costs is just the tip of the iceberg) was always going to pull down the number of advisers.

Also, they may just be plain wrong about some of the numbers. I have had a piece of mail every week from a training provider addressed to me personally because they mistake me for an adviser -- I have been one, but not for a while now, and at this stage it doesn't look like I will be one in the future.



New KiwiSaver Funds Indicate Trend

New Kiwisaver funds are indicating the direction in KiwiSaver. The market is splitting into increasingly differentiated segments - one, an uninvolved group, still in the fund and scheme they defaulted into, at minimum contribution levels. The other, an active and highly engaged group in a fund selected and chosen - perhaps even still with a default provider - but increasingly with another, often boutique manager. The comments made by van Schaardenburg about  balances and involvement are bang on.

The Purpose of Financial Planning

It is sometimes assumed that the purpose of financial planning is to maximise wealth. I actually had this conversation with a mate at the end of last week and I've been meaning to blog it since.

I think this is obviously bunk - and It's easy to test such a breezy generalisation: since most client's wouldn't be happy to live like paupers so that they can have large portfolios of managed investments, you can tell it isn't what flicks the client's switch. If you aren't focused on tha, then you're nowhere.

So what is it? If you look at what most clients want, well, it's generall the opposite of wealth accumulation. They much prefer spending it to either making it or managing it. They accept the latter two activities as necessary incidents to the former. They have different tolerances to tisk - and let's face it, most people talking to financial planners are pretty risk averse folk, because the really gung ho ones don't take advice and aren't really worried about putting aside money for the future either.

What most clients really want is help with specific financial choices or some overall assistance (bearing in mind the risks etc) to optimise their consumption over their lifetime. Yep, spending it. Ultimately.

General Risk Post - Get Ready, Civil Defence

Any financial adviser not addressing wider physical risks after the big reminder - and several throusand small reminders - that have recently been arriving in Canterbury should be taken out and shot. They should either be telling their clients to address these risks, or helping them do so themselves. The issue should remain an open flag in a client file until addressed.

However, let's also take a step back and consider the actual protection required rather than just the financial protection required. Pull out your civil defence checklist and work through it. We did this a few years ago, and got a bit of kit together, but since then we've let the treated water reserves go in a clear out of 'the cupboard' (you probably have one like that too).

As a cosequence of a school programme we're back into it. If you haven't got yourself organised, here's the checklist. Get to it!

Of course, I loathe the use of 'thru'.

Wonderful Weekend

Pond maintenance - the concrete pond finally had to go. It cracked again, even the glued in liner came away - we've now got a plastic liner instead. We're at 24 hours post construction and we've essentially solved all leak problems. Whew. It was a big one (involving the use of a pick axe, which was fantastic fun) but we're all done.

Great weather - always helps, kids outside. Heh, I didn't even get sunburned, which I nearly always do the first decent weekend of summer!

Deck maintenance - a start was made in August, but now we're in earnest. Clearing up after the pond fixing session led to treating the patio with 30 seconds and starting to work on the downstairs deck.

All in all, brillliant way to spend three days.