[Weekly wrap] Calls to reclassify KiwiSaver

A debate started today which is bound to polarise the financial advisory community. The Professional Advisers Association has started lobbying the government to get KiwiSaver classified as a category two product.

Friday, August 31st 2012, 9:11AM

by Niko Kloeten

In its submission on KiwiSaver sales and distribution, the PAA has called for advice on the scheme to be made more accessible by changing it to a category 2 product rather than category 1, allowing RFAs to provide personalised advice on it. The issue has long been a controversial one in the adviser community and the PAA's view is likely to get a mixed reaction.

Already comments have started on this article.

The KiwiSaver debate highlights the wider issue of how products are classed under the Financial Advisers Act, with investment products requiring advisers to be authorised but risk products only require advisers to be registered. As one RFA said to me, advisers need qualifications to be able to advise someone with $5000 in KiwiSaver but don't need any qualifications to advise on million-dollar life insurance policies.

The PAA was also in the news this week for being approved as a Delegated Assessment Organisation (DAO) by the ETITO, which is to be re-named The Skills Organisation. This means the PAA will be able to offer its members the Level 5 National Certificate in Financial Services - including assessing Standard Sets modules in-house.

In the regulated environment it is more important than ever for professional bodies and industry associations to add value for their members, and providing educational pathways is one of the ways they can do it. This move could prove to be a masterstroke if future government regulations require all financial advisers to reach Level 5, as some have predicted.

In another twist in the Perpetual Trust related-party loan saga, Perpetual has gone to court challenging the legality of searches carried out by the Financial Market's Authority as part of its investigation. Perpetual has taken issue with both the form of the notice that was given and the amount of time the respective companies were allowed to prepare.

They may have a case, depending on Justice Heath's verdict, which if in Perpetual's favour could make quite a lot of evidence gathered by the FMA inadmissable in the event of a trial. However, its decision to pursue a judicial review is unlikely to make it any more popular with investors affected by the behaviour the FMA is investigating.

Also this week, investors have voted in favour of terminating the Gloucester property syndicate managed by SPI Capital, which has promised a $1.1 million related-party loan will be repaid. The loan was at the heart of concerns by some investors about the wind-up plan. At 63% the support was enough to pass but wasn't exactly overwhelming.

However, Gloucester investors have fared better than investors in some of SPI's other syndicates, which have had a tough year overall. Hardest hit has been the Hunua Syndicate, which saw the value per unit drop by 60% between March last year and March this year. Two syndicates were placed into receivership last year after not being able to meet interest payments.

One investor who took action against his financial adviser and the company he worked for has asked, where are all the adviser lawsuits? Engineer Arthur Smith has reached a confidential settlement over failed Bridgecorp investments, which he argued were "faulty" products, bringing the Fair Trading Act and Consumer Guarantees Act into play.

What this shows is that aggrieved investors had plenty of avenues to pursue financial advisers over alleged wrongdoing before the current regulatory regime was put in place. And, as highlighted by corporate lawyer Brian Henry, the new system encourages things to be done behind closed doors, removing important scrutiny and case law that comes from cases going to court.

Following the recent trans-Tasman mutual recognition agreement for financial advisers, TNP has announced a strategic alliance with an Aussie financial services firm. And Europe is looking at banning investment commissions but according to IFA boss Nigel Tate, it won't be a major issue if/when the same thing happens here.

In the insurance section this week, insurance advisers have been warned they could face legal challenges if they fail to recommend health insurance that includes non-Pharmac benefits. It's clearly a big issue given that it has been the most commented story on Good Returns this week.

Finally, in deposit rates news, GFNZ (formerly Geneva Finance) has received $3 million in new funding and will repay investors.

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

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