Friday 16th of October 2009

After a little absence I'm back! I wrote this post a little while ago as  it touched on a theme that had been on my mind for a while. Also once I started sounding it out on others I realised many agreed with the thoughts. As usual would love to know what you think. My other little - pre Blog announcement - is that since Blogs had been a little thin on the ground I thought I'd add a Twitter account too. This way I can give you some other thoughts on things as they happen. You can follow me at http://twitter.com/PhilMacalister Now for the Blog! There is this view at the moment that adviser regulation is the answer to all our financial woes. Woes could stand for “when over-excitement strikes’ and examples include people losing money in finance company investments and dodgy property schemes like Bluechip. Sorry, adviser regulation is not the panacea for preserving us from future ‘woes”. I support raising the standards and improving the quality of advice (and have argued overall it isn’t bad in New Zealand). The harder problem to solve is investor education. No matter what the powers-that-be say about recent “issues” an underlying problem is people making dumb decisions to invest in dumb products. I am a little tired of hearing about investors calling themselves “victims”. In many cases their woes are of their own making. They looked in the paper for the highest finance company rate and invested their money there. No advice was given. Things weren’t helped by unqualified self proclaimed experts providing ratings for these investments that may have given encouragement to the investor. The recent case Bluechip court case makes the point the law isn’t there to protect bad investment decisions – nor should it be. Now don’t get me wrong. There are things that can be done to improve the advisory industry (and make it a profession). But if you are going to put an ambulance at the top of the cliff it is regulation of product manufacturers. Someone should be looking at finance companies, CDOs and these other non-mainstream offerings and making sure they are properly represented to investors. Yes there should be an ambulance at the bottom of the cliff dealing with the dodgy investments and their fallout. The curious point here is that neither of these are about the advice process; it’s at the product and regulation levels. My biggest concerns are that advisers are held out as the scapegoats when there are others that are more culpable – mainly Mum and Dad investors who take no advice. There are plenty of advisers who do a bloody good job for their clients. Yes, there are some who don’t do such a good job too. But what is being proposed is going to drive good advisers away from the business and add significant costs to those who stick around. Making it harder isn’t going to automatically produce the outcomes some want. I don’t hide the fact I am pro- advice and think it is in an important part of the process. If regulators and others want to fix the problem start with financial education. Punters are often their own biggest enemies.