[Weekly Wrap] Ross failure leaves questions

The demise of Ross Asset Management so quickly and specatularly made me think about regulation some more this week.

Friday, November 9th 2012, 6:54AM

by Niko Kloeten

Advisers have been given a heap of new tasks and paper work to fill out all in the name of regulation and protecting the public. From what we see and hear from the FMA and advisers who have had the FMA knocking on their door, advisers are doing a pretty good job.

That view is supported by results from the various disputes resolution schemes. It ain't investment advisers causing trouble.

Then out of the blue we have this boutique fund manager, Ross Asset Management, whom we haven't heard about for years suddenly getting a visit from the FMA.

While it's too early to know exactly what was going on within the firm. It has now effectively been placed in receivership and there has been no word yet from Ross, who is in hospital with some undisclosed alilments.

What made me think about regulation is that mainstream fund managers employ all sorts of firms to help them run a tidy ship. Whether it be fund adminstration, unit pricing, trustee services, legal and accounting firms. There is a raft of these people involved. Fund managers do it not because they like these people, but it is part of what is required to run a compliant business.

The question is where were all these people with this so-called boutique funds management firm? How, in this increasingly regulated world, could they operate like this?

In brighter news, today the IFA announced its new chief executive. As we predicted it is a woman from outside the industry.

(If you are looking for a new job then check out what's on offer in our Jobline section - or if you are looking for someone why not advertise here?)

I can see a topic of discussion will be the value of groups. Details of the AAA Advisers Association's agreement with AMP emerged this week and it seems most of the AAA members have opted for the more independent contracts, despite this locking them out of AMP's wealth platform. The group had been in negotiations with AMP for about nine months after AMP raised concerns it could be liable for advice given on other providers' products by advisers it had agreements with.

Now that's out of the way the AAA is trying to grow and it has vowed not to clip the ticket along the way. New chief executive Wayne Smith has described the model of charging over-ride commissions as being under pressure, and said by not charging them the AAA offered a better proposition for both advisers and providers. Smith, who is new to the financial services industry, says consolidation is inevitable in the newly regulated industry.

The FMA's guidance on KiwiSaver advice may not be the final word on the subject, if the issue somehow winds up in court. A financial services lawyer says that if an adviser or firm is taken to task by the FMA for their KiwiSaver practices and it does escalate to a courtroom, a judge could be asked to take a view on certain aspects of the FMA's interpretation in dispute. Courts have provided useful clarity on a number of commercial issues in the past, although it would be useful if MPs made laws clearer.

Worried that one of your clients could be a relative of Kim Jong-un? Well, you'll soon be able to check, thanks to new software coming to New Zealand to help advisers comply with their anti-money laundering requirements. Many advisers seem skeptical as to how many money launderers and terrorists they are going to catch under these new regulations, but there seems to be a growing view that complaining about it is pointless and it's time to work out how to comply.

Where will the next battleground for financial advisers be? According to NZ Funds boss Richard James, it will be in the workplace. One of the issues advisers have in New Zealand is that companies here tend to be pretty small, particularly out in provincial towns. NZ Funds has developed software to assist advisers with these smaller employers and it will be interesting to see if any other companies follow suit.

In insurance news this week, Tower Medical Insurance's new owner has ruled out commission cuts for advisers. And Russell Hutchinson says contrary to what some say, insurance is becoming increasingly important for older people.

Have a great weekend.

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

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