[Weekly wrap] Huljich punishment decided

There was little Christmas cheer this week for former fund manager Peter Huljich, who was handed a big fine for misleading investors about the performance of the Huljich KiwiSaver scheme.

Friday, December 23rd 2011, 9:09AM

by Niko Kloeten

Huljich was fined more than $100,000 (the company was fined twice that amount) after pleading guilty to a charge brought by the FMA. This probably isn't a huge amount for a man whose family is on the NBR Rich List, but he had asked for a discharge without conviction.

The Huljich scandal was one of the black marks against KiwiSaver in the early days of the scheme, alongside some decidedly dodgy sales methods that have been stamped out. This case needed to be viewed not in isolation but with regard to the integrity of KiwiSaver.

Another big KiwiSaver story this week was a new report released by the Treasury that found that KiwiSaver isn't reaching the people it's designed to help. Only one third of people in the target group have joined, and at a heavy cost for the taxpayer. Worse still, the report found KiwiSaver may actually reduce national saving.

This report seems to slay the myth that KiwiSaver is a sure-fire path to prosperity in New Zealand. Many of those the scheme is meant to help can't afford to be in it, and making it compulsory would only make life even harder for these people. Perhaps New Zealand's real problem is low incomes rather than low savings.

Just before Christmas seems to be a popular time to release reports, discussion documents and guidance notes. For instance, the IRD has released a new draft statement on tax avoidance. Be afraid, be very afraid - even if a transaction/product complies with the letter of the law the IRD can later decide it doesn't like it and prosecute.

This means advisers are at risk, and fund managers as well. When choosing an option that gives you a tax advantage, you have to try and guess whether that was what Parliament intended. Yeah, good luck with that one.

The FMA has also recently released guidance on what sort of analysis is required before advisers can recommend companies or products. In this case the focus was on IPOs, after adviser confusion over whether they could recommend companies with no analyst coverage. The short answer is, the FMA says yes.

Bad news for taxpayers - Allan Hubbard's Southbury Group and Southbury Corporation are unlikely to repay much of the nearly $190 million plus interest they owe South Canterbury Finance, whose investors the government bailed out to the tune of $1.7 billion.

This is hardly surprising given Southbury Group's major asset is Southbury Corporation, which has "assets" including its 100% shareholding in SCF and an $18 million loan to Southbury Corporation. The receivers also say they have picked up dodgy transactions and potential breaches of legislation.

In insurance news, Sovereign has kept its rating from AM Best despite its parent ASB Bank having its rating lowered by another ratings agency.

Dorchester Pacific is pulling out of the life insurance market, deciding to focus more on consumer insurance products.

And Fidelity Life expects another tough year but sees plenty of opportunity in the competitive life insurance market.

Merry Christmas and happy holidays!

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

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