[Weekly Wrap] Commissions and convictions

The government plans to take action on two important regulatory issues - eventually. Meanwhile, the verdict is in on the Bridgecorp directors.

Thursday, April 5th 2012, 8:22AM

by Niko Kloeten

The government plans to take action on two important regulatory issues - eventually. Meanwhile, the verdict is in on the Bridgecorp directors.

One of the regulatory changes the government is looking at is a ban on commissions. The question appears to be what types of commissions will be banned, rather than whether there will be a ban or not; the IFA considers it likely New Zealand will follow Australia's lead.

However, it could be up to four years before such a ban is put in place, if indeed the government goes down that path. The IFA has warned that if commissions are banned for insurance products it could worsen New Zealand's underinsurance problem.

Another issue that will be looked at when the government reviews the Financial Advisers Act, some time before 2016, is a loophole that allows advisers with overseas convictions to be registered without having to disclose their convictions.

While Authorised Financial Advisers are required to disclose overseas convictions, RFAs only have to disclose local convictions. The government's slow response to the issue is puzzling. It's hard to imagine it planned on giving the seal of approval to people who have been proven to be dishonest, even if the dishonesty happened overseas.

Speaking of dishonesty, three former directors of failed finance company Brigecorp have been found guilty of misleading investors in the lead-up to the company's collapse.

While the government takes its time on making the proposed regulatory changes, product providers are also taking a wait-and-see approach to providing products for helping people manage their finances in retirement.

New research by Mercer shows the average person will need $40,000 a year to live on, and advisers and product providers will both play important roles in helping retirees manage their draw-downs. However, there are some structural problems that need to be overcome.

Still on the topic of retirement, there has been a call for the government to make big changes to the KiwiSaver default provider system. Michael Littlewood, co-director of the Retirement Policy Research Centre, said the government should allow its agreement with the current default providers to lapse.

Meanwhile, new life insurance company Partners Life has received a rating from AM Best which assesses its financial strength and claims paying ability. It has received a "Secure" B++ rating from AM Best which indicates the company has a good ability to meet its on-going insurance obligations.

One company that isn't in good health is Allied Farmers, which has been given another year to pay off a loan to its collapsed subsidiary Allied Nationwide by the company's receivers.

HSBC New Zealand is also having a tough time, reporting a $3.6 million loss for the December quarter due to ballooning debt charges. Its mortgage book is also shrinking.

In other HSBC news, its latest survey of fund managers has found a growing appetite for Chinese equities.

For local investors, NZX-listed bank debt issues could be good buys due to incoming regulatory changes that mean they will no longer be counted as capital.

Finally, Good Returns featured two market commentaries this week, with Tyndall questioning how much benefit the wider economy will see from an increase in credit, and Harbour comparing quantitative easing to methadone.

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

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