Numbers don’t stack up advisers on SOE sales

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Prohibitive costs make providing advice on the upcoming SOE floats unaffordable and will result in many investors going without any advice, financial advisers say.

Thursday, July 26th 2012, 7:28AM 4 Comments

by Niko Kloeten

In recent days attention has focused on National’s push to get first-time investors to buy shares, including offering a share “loyalty” scheme that will see investors get free shares if they hold theirs for a particular period.

FMA chief executive Sean Hughes said this week that “it would be a good idea for New Zealanders to seek competent and professional advice from someone who understands investing shares."

But according to Institute of Financial Advisers president Nigel Tate, providing advice solely on SOE investments would be uneconomic for most AFAs.

He said giving advice to people buying $1000 of SOE shares could cost AFAs as much as $500 to comply with all their requirements under the Code, including disclosure and getting to know the clients.

“Certainly it’s the same as KiwiSaver in that regard.”

He also said there were limited numbers of AFAs, with only 2000 nationwide and some of those unable to provide advice on direct investments.

Chris Lee and Partners adviser Michael Warrington also highlighted the high cost of advising on relatively small amounts of money.

“The regulations brought with them new costs and liabilities; because of that we have to establish a business to earn the revenue to be able to pay for expenses and to share those across clients.  It’s a little bit out of proportion to a $1000 investment.”

“The public needs to be careful they don’t consider Cabinet or John Key to have been their adviser… it wouldn’t be appropriate to view the seller as the person who gave them advice.”

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

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