[Weekly Wrap] Catching the cowboys

This week's news featured a financial adviser being charged by the SFO, flat fees being challenged, toddlers who will live to 100, and a QFE adviser dealing with raised eyebrows from peers.

Friday, June 15th 2012, 9:29AM

by Niko Kloeten

On Monday the Serious Fraud Office announced it had laid charges against a (now former) financial adviser, whom it has accused of a $5 million fraud. Like any case involving a financial adviser falling foul of the law, this can be seen as both good news and bad news by an industry that doesn't always get great PR.

On the one hand, financial advisers tend to get tarred by a collective brush that other professions seem to escape; when a doctor is charged with misconduct you never hear people saying all doctors are crooks, for instance. In this sense any negative publicity damages the reputation of all advisers in the eyes of some.

However, the positive spin one can put on it is that at least the so-called "cowboys" are being caught, in this case with the help of the Financial Markets Authority which is the frontline monitor of the industry. Even with regulations in place there will always be people in any industry who do things the wrong way.

Also in the news this week was a new report by the Financial Services Council predicting that as many as half of all children born in New Zealand last year will live to 100. If this is true it will force advisers to change in a number of ways, as well as the attitudes of their clients.

While the aging population is often in the news with regards to the huge fiscal cost on the government, ultimately it can only be dealt with by people taking responsibility for their own finances and making sure they have adequate provisions for what in some cases could be 40 years in retirement.

Financial advisers need to play a key role in helping people work out how much they need to save and for how long, as well as how to manage the draw-down phase once they retire. As a number of recent surveys have shown, people left to their own devices tend to underestimate just how much money the need to put aside.

Meanwhile, a QFE adviser has spoken about the benefits of the decision for his business, as well as the strange looks he has received from other advisers when told of his move.

QFE advisers operate somewhat under the radar compared to advisers who have been independently registered and authorised (although many AFAs/RFAs also operate under QFEs). Some QFE advisers are former investment advisers, while others are bank tellers. And as the story shows, QFE advisers are heavily monitored by their QFE.

Another news story this week involved people in the financial services industry defending the assets under management model for financial advice, while pointing out the potential problems with charging flat fees. This follows a piece in the Australian media questioning the merits of charging based on assets under management.

Australia's FOFA regulations push advisers towards charging flat fees for investment advice instead of c. ommissions or asset-based charging. New Zealand's regulators should avoid the temptation to meddle in how advisers charge and focus on ensuring that all fee models are transparent for consumers.

Each model has merit and restricting the way advisers can charge clients could mean certain types of consumers miss out on financial advice altogether.

In other news this week, the New Zealand Super Fund remains below its performance benchmark, while most KiwiSaver members face a retirement savings shortfall regardless of what sort of fund they are in. The problem, according to ASB, is that people simply aren't putting enough money in.

The people news this was about former AXA boss Ralph Stewart resigning as chief executive of ACC. This is a huge loss for a government body that has been in the press for all the wrong reasons recently, and none of them Stewart's fault. Lots of other appointments too. All these are in our People section.

Finally this week, the OCR remained at 2.5% but Reserve Bank Governor Alan Bollard said that while the rate isn't likely to go up soon, there's only an outside chance of a cut.

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

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