A finance lecturer says many AFAs are not qualified or competent to pick stocks and could be putting themselves at professional risk by doing something outside of their capabilities.  Naturally there are many AFAs who would disagree with his assessment.  It's an interesting issue because unlike a skill such as plumbing, there's no accepted measurement of competence in constructing a portfolio.  A toilet either works or it doesn't.  Who defines the "right" way of picking stocks?

I remember a couple of years back at the CFA Society's annual dinner the wife of one of the analysts, a schoolteacher, won the award for making the most accurate forecasts at the previous year's dinner.  Perhaps this teacher is a financial genius (she didn't seem to think so), but the fact she beat a room full of highly trained analysts shows that in the complex financial world a layman's predictions can often be as good as an expert's.  AFAs might also gripe that some "qualified and competent" fund managers continually underperform the index yet face no regulatory action (although they might lose clients).

One AFA who did engage in stock picking was David Ross, who has become the first AFA to have his licence suspended.  It could be argued the suspension is a bit of a moot point given his career as an adviser was done and dusted the moment the situation at Ross Asset Management came to light.  However, the ability to prevent people from practising as financial advisers is an important power for the FMA in its quest to stop investors getting burned.  Just look at the number of finance company directors who had been involved in previous financial disasters. 

And while the Ross debacle has brought negative attention on advisers and the finance industry in general, it is also important to look at the positives.  Out of 2000-odd AFAs only one has been suspended so far, 18 months into the regime.  This suggests the authorisation process was sufficiently robust that most of the bad eggs have been kept out.  It's just a shame the exception has been such a big one.

Speaking of regulation, advisers have been warned not to get so caught up in it they lose perspective on what clients want.  While explaining the various aspects of regulation to clients is important, acronyms such as AFA and CFP generally won't win advisers business.  When people go to a doctor they assume a level of competence that fits the services they provide; most patients don't ask for a blow-by-blow description of their degrees.  As with doctors, results are what matter for clients of financial advisers.  However, when you've spent two years in a regulatory echo chamber, it's easy to forget that most people probably don't even know advisers have become regulated.

An improvement in financial markets is among the things advisers are hoping to see this year.  What's on your wishlist this year?  I'm keen to hear your views on this.

We had a couple of interesting commentaries this week, including one looking at the gap between what financial markets and central bankers think about the economy, and another looks at the issues around New Zealand's quest for ultra-fast broadband (UFB). 

In mortgage news, banks are expecting the Reserve Bank to take action to cool the housing market, while in insurance news advisers have been warned over cancellation fees being used as commission clawbacks.

And finally, the Financial Services Council has claimed that increasing KiwiSaver contribution rates would provide a significant boost to the economy.