[Weekly Wrap] Clarity needed

One of the themes this week was adviser confusion over their obligations when dealing with lower value advice.

Friday, January 18th 2013, 9:00AM

by Niko Kloeten

We revealed that the Financial Markets Authority is considering issuing guidance on the subject, which emerged as a big concern for advisers in the regulator's recent AFA report. While a decision hasn't been made, such a move would be welcomed by advisers as previous guidance on issues such as KiwiSaver and research has cleared up confusion in those areas.

Whether advisers agree or not with the FMA's conclusions, they will at least know exactly where the regulator stands. The FMA's raison d'etre is consumer protection, so here's hoping that the desire to protect consumers doesn't result in them being unable to access affordable financial advice.

The uncertainty felt by advisers is causing some to produce unnecessarily big documents. A Standard Set C assessor says advisers can already produce relatively small documents under the current settings.

This is the sort of issue that would be helped by the FMA producing a guidance note. One of the frequent complaints from advisers about the new regime is the amount of paperwork involved and part of this is the desire to cover every base. The more confident advisers feel about what they have to do and what they don't have to do, the less time and paper will be wasted.

Another story this week was Auckland-based adviser Andrew Robinson becoming the second AFA to lose his authorisation. As with David Ross, the first to be stripped of his licence, the FMA's investigation into Robinson and his firm began after a complaint from a client. However, it seems clients were having difficulty getting hold of Robinson for some time before the FMA was contacted. It's too early to speculate on what might emerge from the investigation but perhaps in future clients of financial advisers will be quicker to contact the regulator if they are having problems getting money out.

Also this week, the boss of FundSource has spoken out against the negative perceptions some advisers have towards research houses.

The cynicism is based around a view that there is some sort of conflict of interest in fund managers paying to be researched. However, advisers should be thankful that fund managers have to pay because if they didn't advisers would likely have to pay a lot more for the research services they subscribe to. Fund managers are in effect subsidising advisers. There is also a question of which is more independent? The FundSource model (charging managers to be researched) or the Morningstar model (where managers have to pay to promote their rating).

A political decision made nearly 40 years ago has had a lasting effect on the financial advice industry. A new survey by the Financial Services Council has found most New Zealanders think getting rid of compulsory superannuation was a mistake, and advisers and others in the financial services sector have particular reason to regret it.

KiwiSaver is expected to increase demand for financial advice over the next few years as balances grow, but if compulsory super had been kept in place this increase in demand would probably have happened decades ago. Whether it would have led to improved standards of financial advice is another matter.

It's well known that the last five years have been tough for investment markets, but Melville Jessup Weaver has gone back further in time to provide a summary of how things have gone in the last 20 years. Growth investors haven't fared too well.

And in insurance news, Sovereign has received an A+ rating from A.M. Best for the sixth year in a row.

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

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