Low-end investors missing out on advice

The Financial Markets Authority is looking at how to make it easier to give advice to low-end clients, amid concerns by Authorised Financial Advisers that this segment of the market is missing out.

Thursday, December 20th 2012, 7:04AM 5 Comments

by Niko Kloeten

The FMA’s AFA Report, released this week, said advisers surveyed expressed “genuine concern” around access to advice for the small to middle end of the investor market.

“Many advisers want to be able to provide a streamlined or ‘simplified’ advice model to lower value clients, or for simpler transactions, without the full compliance burden and fee scale of a full personalised advice or investment planning service,” the report said.

The FMA said it shared advisers’ concerns about access to advice for low to mid end investors.

“We believe this issue needs to be considered along with the issues around record keeping, disclosure and full suitability analysis,” it said in the report.

“Any streamlining and simplification of these requirements should have access to advice (and the economic viability of the provision of advice) as one of its key objectives.

The FMA said it had had initial discussions with the Code Committee on possibilities for streamlining requirements for specified products, such as KiwiSaver.

Institute of Financial Advisers president Nigel Tate said the lack of access to financial planning for low and middle-end consumers wasn’t a new issue.

“The ones who most need the advice of a good financial planner are those who can least afford it; it’s almost self-evident,” he said. “It’s a bit of a Catch 22 thing; it’s very difficult to scale your advice.”

Rival Wealth adviser Tim Fairbrother said the focus should be on consumers getting good quality advice, rather than trying to give everyone the same advice.

“Next year we’ll be looking to segment our clients a lot more; we’ll be looking to focus more on the higher value clients in terms of the ones we might do more advice for. The more complex the advice the more likely they are to go ahead.”

At the lower end there was a lot more competition in the form of banks and RFAs, he said.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 20 December 2012 at 10:04 am Patrick Diack said:

I gave "advice" to my clients when I signed up people to Kiwisaver outside Winz, a market no one else bothered with. For helping these people, I lost my job, my reputation and my good name, thanks to the FMA. It is unrealistic to expect advisers (AFA or RFA) to follow the standard guidelines with these customers. The process needs to be simplified.

On 20 December 2012 at 11:12 am Dirty Harry said:

This guy just wont go away will he - how long ago was it Patrick?

Paying people to sign up for something that pays you is more like coercion than advice.

Signing people up on the roadside without a proper process is more like herding cattle to the works than advice.

Were all those people who signed up happy with their outcomes? Are they carrying on their contribution? Can they afford to pay?

You didn't have a "job" to lose Patrick. You were stopped from carrying on a poor practise. You could have gone after the same group in a different way.

On 20 December 2012 at 7:48 pm Heathcliff said:

You think it's bad now, wait until next year. If the partial sale of SOEs goes ahead as planned, there is going to be a new class of investor, the much-vaunted Mum and Dad investor, who may want to invest as little as $1,000 or two (whatever the minimum is going to be) but require an hour of an AFA's time to explain all the risks etc. And who is going to pay for that? Let's hope the FMA takes the lead on this, in terms of investor expectations and what's actually realistic.

On 21 December 2012 at 3:42 am Collin said:

'Genuine concern' or 'couldn't be bothered'? Most advisers look at the low-end investor and run away because they believe that there is nothing in it for them. The reality is that financial advice is necessary and needed for some but is certainly not for everyone. People, whether high-end or low-end, ultimately find a way. KiwiSaver members getting financial advice face risks - a different set of risks but risks nonetheless e.g. overpaying for advice is a huge risk. Having a financial adviser is just one approach but it is by no means the only way. When advisers embrace the low-end of the market, that is when the 'advice solution' to this market will appear.

On 23 December 2012 at 6:06 pm traveller said:

There is no future for a profitable business by trying to advise the small end of the market. It's equivalent to legal aid.

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