Govt criticised for cutting AFAs out of sales

State-owned asset sales could have been a lifeline for AFAs – but the Government didn’t give them a chance, one adviser says.

Monday, April 28th 2014, 6:00AM

by Susan Edmunds

Genesis, the last of the three power gentailers to be partially sold by the Government, listed before Easter.

The floats received a lot of public attention but AFAs’ access to them was limited.

That was most noticeable in the case of Mighty River Power and Mercury, where big broker firms formed the retail syndicate, and to a lesser extent in the case of Genesis, where those who are licenced as NZX sharebrokers could take part in the bookbuild.

Adviser Chris Lee, who was involved in the offers, said the Government had been unwise in its distribution model. “If the Crown wanted the widest possible spread of investors it should have asked every competent financial adviser to register their interest in participating in the distribution.”

The Government had created the concept of AFAs, he said, handed them a host of requirements, and then not used them.

If it had, it might not have had to seek as much overseas investment in the state-owned asset sales.

It might also have had a negative impact on the public perception of the float, he said.

“By excluding nearly all of the 2000-odd authorised advisers from a direct involvement, the Crown risked the outcome of negativity by these people, a risk that converted to reality. Negativity affects the pricing. The distribution process should have been more inclusive.”

Advisers might have been able to entice in more investors who would otherwise have put their money in the bank, he said. “Plenty of AFAs are competent. It would have helped to get a better outcome if they were included in the process.”

It would have been a chance for the Government to give something back to those who had stuck through the regulatory change, he said.

Lee said he had heard from many people that life was not easy for many AFAs, particularly at the moment because of the low interest rates, high share prices and strong dollar.

“Buying into the Nerw Zealand market takes a lot of courage… It has to be tough to convince people that if you’ve got half a million to invest, you should pay $10,000 for access to managed funds. You might get away with it if returns are 10% or 12% but if it’s 5% and there’s 2% in intermediated costs, it’s not even returning a bank rate.”

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