This article deals with ANZ and ING. But it has comments on the broader issues of who you should invest with, and how it should be done. It points out that investing with large financial services providers (Fund Managers) may have its advantages.

Dealing with Advisers may have advantages as well.

http://www.stuff.co.nz/business/personal-finance/3782015/Rules-change-in-the-advice-game

I see a Financial Services Provider wrote it. And she did a nice job too.

In the life insurance realm, which was not highlighted in the article, one example of how Advice can help you is seen in the area of income protection. Here is part of a case study. An older couple, who are both working discover that they have $30,000 per year tax paid cash flow more now than they had the pervious year. So they decide to reduce some of the benefit from one of their income protection policies.

The question is, should they reduce it by A) $30,000 per year? B) $30,000 after tax,C)  or not at all?
What would they need to know to determine the answer? Well, here some ‘hidden’ calculations suggestions to help.

What happens, in actual dollars if one of them is on ACC or off work for some reason when the other spouse needs to claim on their income protection plan. Bad luck eh?
It’d be more than bad luck if it meant the sale of assets immediately prior to retirement just to cope with a miscalculated disability income benefit!

Another question on the same case study is this. What if the spouse who was not having their disability income benefit reduced a) quit work before the claim, and couldn’t get back into work in time to save the family cash flow, or b) only had a short ACC or disability income benefit if he or she was sick at the the time the main income earner needed to claim on income protection?

Without a spreadsheet, all the incomes, a summary of all the outgoings expected, some detailed knowledge of the insurance policy wordings and some experience thinking it through, you could easily jump to the wrong conclusion.

As an Adviser, I’m always astounded how the logical answer does not always match the researched answer. It takes a 7 step financial stress test to work out those kind of answers. Not the simplistic 5 or 6 step tests that are promoted as best practise today. The 7 step is added to this thorny area of income protection, to make sure it all thought through thoroughly.

But any 5 or 6 step test is better than no test, or no Advice. And to put that statement in the context of what the article above states about those who sought (investment) advice, and still lost money…Perhaps their advice was not as thorough as it might have been. But then I’ve heard (we’ll call it hearsay) 80% of the people who lost money with one particular asset type in recent years took no advice from an investment adviser at all.

“Not all of these guys are bad, some do understand that these risks will be with you for your whole life and therefore want to build a relationship with you that will be long term…”

http://www.stuff.co.nz/business/blogs/stirring-the-pot/3758244/How-much-insurance-do-you-need

I guess we ought to be happy that even got a look in!

In the past there has been a division between fees only, and fees for investment advice only, and commissions based advice. The Governments of the UK, and Australia have in the past 2 weeks announced an intention to  ban commission for investment advice. Today New Zealand’s own ISI an organisation representing some of the investment companies have announced they are going to introduce a voluntary ban on investment commissions.

What does this mean for you the consumer? It means that you will pay more for advice than you currently do. Probably a lot more. But the Governments of the world, and the well paid consultants believe that commissions lead to bad advice. In some cases there is no doubt of this. But for the average KiwiSaver consumer, I have my doubts.

But my doubts are of no use to you or me. Commissions will be banned on investments and fees for service will be set up. And you, dear consumer, will pay or suffer without the benefit of good advice.

There are as many opinions on what to do with your money as there are people with functioning brains. Even your children have an opinion.

There are as many opinions on what to do with your money as there are people with functioning brains. Even your children have an opinion.

So what good can a financial adviser do for you with such an abundance of advice?

The New Zealand Government have created three prposed definitions of financial advice in their new code of conduct for advisers, due to become an inforce regulation at the end of this year. There are three main proposed definitions*. I’ll simply list and define them here.

Financial adviser service:
“giving financial advice or providing a financial planning service”

Financial advice:
“making a recommendation, or giving an opinion or guidance, in relation to acquiring or disposing of (including refraining from acquiring or disposing of) a financial product”

Financial planning service:
“a service that analyses an individual’s current financial situation, identifies his or her financial goals, and develops financial options for realising those goals”

Put like that they sound expensive

In the past a lot of financial advice was provided free of charge based on the assumption that the person providing the advice would earn commission at some point in the relationship. There is now some talk that this is not going to a safe assumption in the future.

Regulation is adding work to the Adviser’s plate.

For example, if I, as a financial adviser make a comment about you in regard to the question, “Should you have a KiwiSaver product in your general financial plans?”, there are a number things to find out. For example, it is now assume that:

I know alot about your situation. For example:
1) Do you own a home, are you in a position as if you’d never owned a home?

2) Do you have employment?

3) Are you a citizen or a permanent resident?

4) Can you afford the minimum contributions?

5) What are your goals for having a KiwiSaver plan?

6) Do you expect it to be your only savings plan?

Is this rediculous?

No. Those are basic questions I would have asked before adviser regulation came along.
So what changed to add work?

Now the adviser has a duty to provide a comprehensive selection of documents.
These required documents include, a ‘Statement of Advice’, which puts the answer to those questions down on paper. And there is no way to contract out of these questions. I as a financial adviser have to ask them.

Isn’t that normal?
If all you did with a financial adviser was elect to take up a single KiwiSaver plan, a comprehensive summary of your situation at the time you took out the KiwiSaver may not have been written into the statement of advice in the past.

Expect more questions from your adviser. Expect more cost too.

*I’m grateful for the summary provided by the Institute of Financial Advisers, New Zealand.
Photo source.

A disclosure statement is available, upon request and free of charge.

However the Securities Commission is keen to offer the following comments.

“The Commission is working with other agencies and the industry to put in place a framework to make financial advisers more accountable. We expect to have this in place by the end of next year.”

The key changes include:

• Registration of financial advisers with the Companies Office with the register available to the public
• Financial advisers providing advice on investments such as shares, managed funds or futures, will have to be authorised by the Securities Commission
• Authorised financial advisers will be bound by a code of conduct setting minimum standards of competence, ethical behaviour and client care
• The Securities Commission will regulate the financial advice industry and monitor compliance with the Code of Conduct on an ongoing basis
• The Securities Commission will be able to take action to suspend or ban authorised financial advisers if they breach the Code of Conduct
• All financial advisers will have to belong to an approved dispute resolution scheme and there will be an established process for handling complaints.

“The aim is to build the professionalism and integrity of the industry so that investors can have confidence in the advice they get,” says Ms Cotton.

http://www.seccom.govt.nz/new/releases/2009/051109.shtml