I've been practicing for 8 years as a Certified Financial Planner (CFP) in NZ and look forward to the new regulatory changes that will take place in the financial advice industry this year. The changes will be significant for those giving advice and wanting to stay in businesses long-term and who committed in providing professional advice.
Since the credit crunch and the meltdown of financial organizations both global and local, a strong demand for good financial advice has and will continue to emerge and I personally look forward to the ongoing regulation and legislative change/s to be fully implemented, as this will provide a better environment for investors looking for good advice. Let’s hope however that we (investors included) do not forget the 'Confidence Crisis' that bought about the demise of credit markets in the free thinking world of capitalism.

"As an American/Kiwi currently working as an (genuinely) Independent Financial Adviser in Denver, Colorado, U.S.A, I read this article with fascination and bewilderment at the state of New Zealand's financial adviser industry.

One of the fundamental reasons that the Financial Adviser industry is successful and trusted in this country is the presence of a heavy regulatory network at both Federal and State level. All advisory firms and individual advisors complete initial training and ongoing certification under this system. New entrants to the industry are required to pass rigorous Federal (F.B.I et al) background checks, separate licensing exams for each aspect of their business (working with securities, insurance, out of state clients etc) and ongoing compliance. Severe penalties including jail are imposed for non-compliance. The majority of these laws have been in place since before World War Two.

Additionally, commissions and sales charges are regulated by law, and advisers are required to disclose how they are compensated, as well as providing certain information to clients such as a fund prospectus before writing business. It is illegal to make an unsuitable recommendation to a client.

I was dumbfounded to learn of the virtually non-existent regulation framework in New Zealand. As too many people have found, the financial services business has great potential for fraud, misrepresentation and professional shortcomings. Regulation should be the first strategy considered to fix the industry in New Zealand."

It was pleasing to read your report, particularly the “Our View” section. Hopefully all of your recommendations will be adopted in the new code of practice for financial advisors.

In addition to the above, I suggest it would be a wise thing for future investors to conduct a diligent internet search prior to committing to a particular investment or financial advisory company.
Such a search will be likely to reveal articles and commentary compiled by journalists who have no vested interest in promoting the investment product or the company and may give warnings as to any associated negative aspects.
Of course failed finance companies will probably reappear in a different guise or under new names as soon as the dust settles. It is therefore worth doing a Google search to investigate the track record of the principal personalities associated with an investment.
The same applies to the financial advisory companies. As a case in point I note in your report that Money Managers is mentioned several times. They have already rebranded themselves as MMG Advisory Partners and are back rebuilding the client base that was decimated following the catastrophic investment failures of First Step, Orange, and Totara.

I started a 26 year career in financial services in the UK in 1983 selling. I worked through many roles for the same company there, ending up in a Compliance Manager role. The changes implemented in the UK through the Financial Services Act and subsequent enhancements had a big impact on the industry there.

2 key changes were that advisers had to be either a representative of 1 company or an independent adviser and their status and all commission had to be explicitly disclosed prior to sales. They also brought in much greater disclosure of product charges and the effect of these on future returns. Fee charging became much more widely used.

Whilst being far from perfect they removed most of the outright cowboys from the industry and created a regulatory environment where all Companies had to sit up and take notice as many were fined large sums (millions of pounds in some cases) for poor advice and forced to recompense affected clients.

The model is there if anyone has the courage to bite the bullet, but no one in this country has shown the spine to do anything other than tinker with a very rotten barrel of apples.

Unfortunately the underlying structure of investment products in this country is so murky that even the best research often can't identify where funds are invested and what the real charges are. Commission is just a part of this web and banning it is not the answer - salespeople need to be paid and this needs to be on results. The consumer just needs to know what they are getting for their money.

I recommend that everyone read the updated version of 'The Intelligent Investor' by Benjamin Graham.
Essentially he says that the best investment strategy, on average (if you are not prepared to read through entire companies' reports, and spend a *lot* of time researching companies) is to put half of your money into bank deposits (or VERY safe bonds - not sure if there are many of those in NZ) and half of your money into index funds (e.g. FONZ, MOZY, OZY offered by SmartShares).

Why anyone would bother with finance companies, or other complex investments (e.g. Raboplus' confusing rate-resetting one) is beyond me.
Remember, it is very easy to lose a large chunk of your wealth - however it is actually hard (and you need discipline and patience) if you want to even be able to hold onto your wealth.

I am disappointed. Financial Fitness, a company who's advice we we rejected on the basis of cost and lack of confidence in the advice given forms part of your expert panel. And the company we have selected as a retirement investment vehicle (and a competitor to financial fitness) was panned. We, as a reasonably conservative couple not working in the finance sector have confidence in the investment decision we have made.
I am highly sceptical about the integrity of both your research method and the conflict of interest evident in your panel. I do not think Consumer has acted in the best interest of NZ consumers in this instance.

And they wonder why Kiwis are so into property?

I figured out many years ago that the overwhelming majority of financial advisers are in it for themselves and are not interested the investor, in fact I have yet to find an exception to that statement.

At last we have a clear explanation of the situation with regard to financial advice; how bad it is, and how we should go about resolving it individually. We, as a family, were despairing of how and where we could get good advice. We went to our bank, the ASB, but they would only advise on their own products.
You have suggested some ways forward, which are good. I would add that we need a clear legislative framework that is written with consumers interests being first and foremast. Without that the current mess, which suits the Financial Industry, would continue. Legislation like this has been done before and would be straight forward to enact.
However it would need a clear political lead which I don't see from the vast majority in Parliament. National will continue to look after their financial friends; Labour believe that by doing and saying nothing they can get back in; the Greens have just lost their best activist and seem to be copying Labour. It looks like without a movement from the bottom up, nothing much will happen.
Without changes to the law, the majority who will never see your excellent report, will continue to make poor choices, based on poor advice.