Supporting advisers
Friday, August 24th 2007, 2:01PM 9 Comments
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Hi Phil,
As an Independent Adviser operating my own business, these dark clouds threatening the life insurance industry, are a real threat if the Government does go ahead with their agenda of taxation review, and put changes in place, so that we are similar to the Australian model.
In NZ we are a very different market to that of Australia, significantly smaller by size and volume, so as the market conditions are vastly different, so the business model for the industry here to survive also needs to be different, unless we are going to become another Aussie State, but I doubt it.
However, we have recently seen the Government fail when trying to do the same to the health industry, with regulating natural medicines, and by the time this is put together and read a couple of times, digested and discussed in the wider media, with ALL of its repercussions to the average kiwi person clearly outlined. This could also be kicked for touch.
Let's face it, if tax were added to insurance companies operational/premium cost, and I have heard various figures thrown about of 30-40%, the result will be:
More advisers will exit the industry sooner than planning to by retirement.
The amount of insurance an individual Kiwi can buy will likely drop by the same proportion of 30-40%, as costs will be redistributed to premiums.
Less people will come into the insurance industry, as there will be less profit available to operate your business on, and hence the volume of insurance products sold will drop also, meaning less tax for the Government.
Levels of insurability per capita will drop even lower, than they are presently, of which the average Kiwi is greatly under insured.
Should the Government force this issue to pass; My question is, Are they going to insure people for more events themselves, i.e. add sickness to ACC, and pay benefits for life, and make Medical care easier to access, provide the service private medical insurance does now, pay the full cost of funerals, pay off the mortgage if Mum or Dad die early, provide funding if a Key Person in a business die's, so the remaining partner can replace them, and keep the business operating in the mean time, for the employees etc, provide a lump sum of cash for those diagnosed with a major trauma, so they can live there remaining days more comfortably, etc, etc.
We all know the answer..... a big fat NO!!!
If anything, instead of trying to damage the industry, the Government should be trying to enhance and support all the good work being done.
The life industry pays out hundreds of millions of dollars in claims each year into the NZ economy, which benefits Mum and Dad policy owners, and reduces the dependence on the Government for financial support.
Giving some further tax benefits to average Kiwi's who insure themselves and act responsibly, would go along way to encourage others to take up even the basic insurance covers available.
I say lets look at all the possible outcomes of this, and make informed decisions to better the lives of ALL Kiwi's, not just the tax take.
Kind Regards
Geoff Peterson
Advisers are paid to provide professional advice to their clients and in many cases where clients have been put into these investments the advice was far from professional.
Unfortunately that fact that the industry does not operate professionally means these advisers will continue to advise rather than been thrown out of the industry like many should be. Certainly if I had been advised by an adviser to invest in some of these debentures I would be seeking legal advice currently.
Not all advisers are paid to provide professional advice. But most allow that impression to be conveyed to their clients... and it's worth debating whether they should hold themselves out to provide advice.
The underlying issue is whether financial advisers add value through product selection processes.
Research evidence is permanently conflicted on this - some saying they do, some saying they don't.
It's times like these that those of us interested in adviser businesses might sit back and ponder whether a less intellectually ambitious value proposition might be better: providing choice, for example, or financial education.
They might find that it's more commercially rewarding for being more credible.
To answer your question Phil, those of us who don't use debentures (or structured products masquarading as debt) have no need to defend ourselves, and those who do are obviously preferring to lay low at the moment.... However, I think it is a fair question to ask where is the industry "leadership" on the issue.
The silence is deafening.
Perhaps they are all too busy jostling for position as the professional standard bearers in the impending co-regulatory environment?
What seems to have been lost on most commentators (aside from the paying for advice debate) is that debentures per se are not the problem. The real issue is poor (or non existent) portfolio construction by advisers or clients directly. A decent investment process very quickly highlights the fact that investors just don't get paid enough for the risk they effectively take. Perhaps that will change with the current credit crunch but I'm not holding my breath.
By the way Russell I'm not sure I follow your logic. Surely both choice and education require some intellectual rigour and both imply advice? It seems to me you are either in or you are out. Perhaps the current market turmoil and greater regulation will help decide things for those with watering eyes and a leg caught either side of the fence.
Could we not also be asking the stance of Trustees and Auditors at this point should they not be loudly questioning those they act for?
Even those offering well diversified portfolios to their clients are obliged to disclose and assist clients understand the impact of the sub-prime mortgage market on the value of equities and bonds and the challenge and risk of a credit squeeze as these sub-primes are found in parcels of securitised mortgages and effect the underlying values of all asset classes. There are no glasshouses and no-one free to cast stone even the NZX have their skeletons, Feltex being one.
So come on people lets all play at least the same song and throw no stones just get to fixing it, we must push for regulation and standardised (no more at that time snapshots)credit rating for all Finance Companies and all the 354 public companies seeking equity investors listed on the NZX.
I would like to make it quite clear that I am no way associated with the first comment on this article written under the name of Peter Rodgers and dissociate my self from it entirely.
I see we have another vitriolic attack from Chris Lee today.
How quickly he has become the great expert on advisers and finance companies, and oh how quickly he and others such as the media have forgotten just how many many millions of dollars he recommended so many of his clients invest into Provincial Finance.
Just as an aside I notice he has recently upgraded a certain finance company on his site as he seems to be running out of ones to recommend to his clients but appears he wanted to use MFS now?
He rates MFS as C, by the way, and recommends that people do not invest in anything below his B- rating.
He has publicly acknowledged he got it wrong with Provincial (and exactly how many other advisers have done the same??), but as you (hopefully) know, that was as much to do with deliberate fraud as with management weakness. Provincial debenture holders should get all their money back (unlike those in Bridgecorp). I also suspect that his clients had limited exposure to Provincial individually, even if the total amount for his clients was in the millions. It's fair to say that a number of advisers probably had clients with a lot more than 15%-20% of their money in Bridgecorp.
As far as his views on advisers go, look at the evidence and tell me if you think the behaviour of the advisers in question was decent or reasonable. For example, was it good advice to tell clients to take money out of South Canterbury Finance and SBS to put into Bridegorp? Was it sensible to continue recommending Bridgecorp's Australian debentures even after ASIC had forced Bridgecorp to withdraw the prospectus?
If you want people to stop bagging the advisory community, it's no good trying to shoot the messengers. Name and shame those who have brought the your industry into such disrepute, and then throw them out of the IFA or whichever organisation represents them and make sure they cannot work in your industry again.
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The first reason must be embarassment - a lot of advisors used the likes of Bridgecorp and IFA has to respresent all members whether good, bad or plain ugly.
The second reason is that recently I undertook a due diligence process on Waikato advisors and got the cold shoulder from David. Asset published an article about this in April. I found the due diligence on products they recommend undertaken by advisors was generally poor and lacked process.
It is time for IFA to take a leadership role and put in place more rigorous selection and monitoring procedures the general public can rely on.