[Weekly Wrap] What does DIMS really stand for?
Friday, June 13th 2014, 12:33PM 
8 Comments
I’ve see a few descriptions recently but have decided that it means Did I Miss Something – a question, no doubt the FMA has been asking itself since the David Ross scandal broke. I understand there were some other suggestions at the Grosvenor roadshows on alternative definitions.
But seriously there is little doubt that DIMS is one of the biggest challenges facing advisers at the moment. We have been trying to find out where things are at. It appears to us that the December implementation date won’t be met, and that some transitional arrangements will be used, rather than forcing all advisers to make the changes on a set date.
One question we keep asking is whether the new leadership at the FMA will listen to what IFA’s have been saying.
During the week I read this speech and have to really wonder why the FMA takes the view that "financial advisers remain a priority for us".
"That’s partly because they have considerable influence – over consumers – through their advice.
"It’s also because there are a large number of them – a little over 1,900 AFAs at March 2014, and a little more than 6,500 RFAs."
There is little evidence that the advice sector is high risk. For evidence of this look at things like recent court cases and complaints to the external disputes resolution schemes like the ISO and FSCL.
Advice isn’t a high-risk area. We can construct a strong case pretty quickly that the money spent by government departments on this sector and the financial and time costs imposed on advisers is totally out of proportion with the risk.
Or put it in investment terms the return on money spent on policing this risk just doesn’t deliver the rewards.
Before I dismount this horse, note must be made of David Ross’s appearance in court this week.
An area which is increasingly attracting attention at the moment is around providing products to help people when they reach retirement age. The jargon is decumulation, but it is such an awful phrase we do try and use different names for it.
Yesterday we had a good update on where Ralph Stewart is at with getting his NZ Income Guarantee product to market. We will have more on this next week. One of the things is that there is a significant amount of money potentially coming out of KiwiSaver in future years. Sticking it in a term deposit isn’t a good option – especially when you read a comment in yesterday’s Reserve Bank Monetary Policy Statement. It said, in a nutshell, that TD rate hadn’t been rising in line with mortgage rates. The result that banks are getting funds at good rates which helps their profitability.
Talking of the MPS we have a review of some of the key comments from economists here for you to read.
In Investment News we have another excellent piece from Pathfinder, this time it looks at risk and volatility. Have a read here.
In other news:
| « Stewart aiming to launch NZIG in October | IFA working on pro-bono offering » |
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Perhaps the Regulator should refer to facts before casting shadows over financial advisers (ie: 75% of those who subscribed to 'failed' finance companies did so without advice).
The end result of DIMS (and other archaic policies that are dreamt up by the so-called industry enforcers) will be a reduction in investor confidence, homogeneous offerings, and ironically a more fragmented / do-it-yourself approach to portfolio construction.
The FMA is definitely more interested in regulating firms which the regulators haven't worked for rather than those they aspire to work for in the future.
Perfectly rational career choices but leaves mum and dad with an adverse investment environment.
Happy to elaborate if anyone is interested.
For details look at http://www.caa.co.uk/application.aspx?catid=33&pagetype=65&appid=11&mode=detail&id=6261
or for bed-time reading get a copy of "The Regulatory Craft" by Malcolm Sparrow.
I had this problem when I did my AFA studies. Not many people seem to know what for example a best practice bond portfolio looks like.
When I met with a senior FMA exec a few years back..the first thing he said to me was "what stocks do you like".
I thought then "oh oh, Houston we have a problem".
Can't say I blame them, overkill, costly, and another 5 hrs a week
of unnecessary administration taking advisers away from advising clients
The mums-and-dads whose advisers choose not to get a DIMS licence will be asked to make decisions about investments
Many of them are not well equipped to do so. The result will be less than satisfactory. Many overreact to either fear and greed, and losses are the inevitable result
But the FMA staff and politicians will have covered their butts (they think !!)
When the mums and dads lose money, the FMA staff and politicians will simply say "well, it was your decision, you can't blame us"
However this shameful outcome - losses caused by daft regulation - will eventually find its way back to those who designed and enforced it
What a farce ! If you want to advance your career, I would suggest that working for the FMA is not the place to do it
Dims is all about process and accountablility. If you want to play fund manager, then step up or get out. Thinking you are adding significant value by having the ability to rebalance without consent is a nonsense. If you are finding it difficult to justify your fee, perhaps that's what you should be rebalancing.
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These arrangements have been around for centuries........But, extraordinarily, the FMA has decided to outlaw them (or at least dictate the terms) as far as AFAs are concerned.
But what about the hundreds, probably thousands, of POAs in existence that don't involve an AFA ?
Plenty of "ordinary kiwis" hold a POA granted by their elderly parents to handle their financial affairs. If POAs in the hands of AFAs are such a problem, what about the thousands that are completely outside the FMA's tentacles ?