[Weekly wrap] Apples v apples

This week the government finally moved towards standardised reporting for managed funds; also, the debate over the future of independent advisers continued.

Friday, May 25th 2012, 7:54AM

by Niko Kloeten

People in the fund management industry have been calling for 'apples v apples' comparisons for some time and the government has announced it will be introducing standardised reporting requirements for KiwiSaver.

This is a welcome development and it is likely these new standards will be applied to the whole industry at some point in the near future. Transparency and disclosure are areas where New Zealand's fund management sector often gets marked down, and opaque reporting benefits those who are less than upfront with investors about their performance.

However, the government must also avoid going overboard with the amount of disclosure required, otherwise investment reports could end up overly long and complicated, making investors less likely to bother reading them. This is the fate that has befallen prospectuses, which tend to be ignored in favour of investment statements.

The changes were announced in yesterday's Budget, in which the government also announced the delay of KiwiSaver auto-enrolment. This move has been labelled "disappointing" by Mercer.

Regardless of your personal view on auto-enrolment (AKA soft compulsion), the government's reasoning appears rather flimsy. Even without the extra $500 million cost the government will still be struggling to make a surplus by 2014/2015. Surely there are other areas of the Budget that could also be cut?

The future of the one-man band in the financial advice sector was also up for discussion this week, with the boss of Lifetime Group (which has just bought Meridian Brokers) questioning the viability of sole practitioners in light of increased regulatory burdens.

However, the comments on the story raised an interesting point: aggregators such as TNP and Allied Kiwi offer services that practitioners would otherwise get from being part of a larger group. This suggests that in a regulated environment there is a market for those that help reduce the cost burden for advisers.

Whatever the future of the market is, it will continue to adapt to whatever regulators throw at it. It seems unlikely the one-man band will disappear altogether, if other professions such as law are any guide.

And speaking of regulatory costs, Commerce Minister Craig Foss has assured adviser industry groups that the new FMA/FAA fees will be "comfortable" for advisers.

As previously reported on Good Returns, the government seems to have had a change of heart about the composition of the new industry funding model, which would originally have seen a heavy burden placed on authorised financial advisers. Given that AFAs already face the highest costs, this would have been inequitable.

However, as with any government promise, these "comfortable" fees will be believed when they're seen.

There were a couple of big moves in the fund management sector this week, with Fisher Funds announcing a big shake-up of its international equities team and Tyndall tapping Goldman Sachs to manage its global fixed interest portfolio.

Given the small size of the New Zealand market, international equities and fixed interest are crucial to any portfolio and it is important managers find the best way of investing in these markets, whether by using overseas-based managers or having a locally-based investment team.

In insurance news, Partners life has been telling advisers the difference between churn and replacement. This is another debate that is unlikely to go away any time soon, and tends to flare up whenever a newcomer (such as Partners) gains market share at a rapid pace.

Also in insurance, Sovereign has appointed a new General Operations Manager.

It was a mixed bag in the mortgage market this week, with ASB's mortgage book growing for the first time in eight months while BNZ's March quarter new mortgage growth was its slowest in two years. Meanwhile, more home loan rate cuts are on the way, with the OCR unlikely to rise soon.

And finally, while mortgage rate cuts are good news for homeowners, deposit rate cuts are making life tough for savers.

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

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