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Business writer David Chaplin blogs on personal finance
Unsolved financial advice mysteries
12:00PM Friday November 6, 2009
I've been through a few mystery shops before so no matter how hard Consumer tried to arouse my disgust at the financial advisory industry with the emotional introduction to its new report, I was not moved.
"Scandalously poor," screamed the headline, followed by the tabloid "... the results from our mystery shop shocked even us: this is an industry in serious need of reform".
Well, it's an industry in the midst of serious reform. Even as Consumer chief, Sue Chetwin, was expressing her concern that things won't improve "unless competency standards are included as part of the adviser authorisation process due to come into force next year", the industry was absorbing new proposals on competency standards.
Chetwin has already called the adviser regulation "too little, too late" and while its introduction has been painfully slow it's also too early to call them a failure.
Chetwin told me that the regulations should be implemented immediately and bolstered at the same time, which seems to me an idealistic vision, knowing the torturous consultation and counter-consultation path these events move upon.
Consumer organisations should be bolshie, though, and its adviser report has formed a valuable function in sparking debate about what financial advice is and how you pay for it - advisers are certainly engaging in a healthy debate.
But it is not an in-depth investigation of the industry. The sample size of only 17 plans is a few standard deviations short of statistical robustness and there are a few other bizarre aspects of the findings - for example, it seemed to be suggesting New Zealanders will continue to enjoy high returns from cash investments when the opposite is more likely.
Chetwin described the mystery shopper report as a "snapshot" of the advisory industry and that's what it is. What we really need is a feature-length movie in the detective genre.
David Chaplin
Pictured: Consumer Institute head Sue Chetwin. Photo / Herald on Sunday
Comments
With apologies to the fair dinkum independent "try hard" financial advisors . but
If you don't have any smarts at the top of the totem pole then you can't expect any smarts lower down the pole.
The primary task for the regulators must be to achieve absolute physical and structural separation between the product providers, the fund managers, and the product floggers. Currently all three activities are wrpped up in the one organisation.
Prime examples being the banks, which includes the insurance companies which are owned by the banks who together comprise 80 percent of the industry. The financial advisors within these organisations and are called financial advisors are employees who do as they are told.
Once you have achieved that goal you can then, and only then, establish rules for the advisors.
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