Comments by Brian Gaynor last week on the curious approach taken to the revamp of financial advice by the 2009 appointed Code Committee for Authorised Financial Advisers didn't go far enough.
While Mr Gaynor was bemused that he would have to sit some exams, as would many well-established portfolio managers and commentators such as myself, Carmel Fisher and Brent Sheather, he didn't highlight just who the Code Committee, in its questionable wisdom, has let through the gate.
Personally I have no issue with sitting whatever exams necessary, but what I do object to is blatant capture of a government-appointed body by a sector interest.
Worse, when the members of that sector interest have committed some of the worst offences against the investors of New Zealand, the credibility of the Code Committee has to be brought into question, the bias of its recommendations acknowledged, and for the sake of restoring the public's confidence in the financial sector, this committee dismissed and its members admonished for their collective incompetence.
The Code Committee has not had a happy history. When she made the appointments, acting Code Commissioner Annabel Cotton applauded the Code Committee, saying it was a "multi-skilled committee [that] brings together a wealth of local and overseas knowledge and experience in the financial sector, covering law, governance, banking, insurance, stock broking, funds management, commerce, education and consumer advocacy".
Well that turned out to be indulgent drivel. In its first incarnation two of its members including its chairperson had to step down because the practices of their businesses were exposed.
The latest mystery shop of a number of financial planners' portfolios published in Consumer magazine - a practice that institution has conducted a number of times in the past - revealed that the portfolios constructed by the firms of committee members Patrick Middleton and chairperson Liz Koh were not up to professional standard. The view of Consumer's panel of advisory peers was unanimous in that regard. To "preserve the reputation" of the committee both stepped down.
Not to have done so would, according to Annabel Cotton, "have risked the public losing confidence in the committee". She boldly went further to say she'd do the same again if faced with the same type of doubt on committee members.
Hollow words - if she'd been serious she would have immediately put the portfolios of all the industry members on her committee to the sort of test Consumer had.
That would have just been basic due diligence - after all what we have here is a committee that is supposed to be righting the wrongs committed against the investing public by the industry and yet it is just laden with industry players.
Given the awful history of the sector, there were questions about whether there were risks of a poacher turned gamekeeper case arising.
Scrupulous standards should have been imposed on the selection of personnel. Annabel Cotton acknowledged as much yet only practised her preaching when forced to by the discipline of publicity.
So it got worse, after the two resignations people wrote in to the financial advisory trade magazines pointing out how terrible the portfolios constructed by the firms of other members of the Code Committee were.
For example, the magazine Good Returns fielded complaints about portfolios constructed by the firm of committee member Mike Staal, which Consumer had labelled 'disappointing' and the promotion of Credit Sails paper by committee member Shane Edmond's firm has long been the subject of public disdain.
Despite this, Cotton took no further action, casting doubt on the strength of her commitment to ensure the public's utmost confidence in her committee.
The warning signs then were loud and clear and the minister should have heeded them.
The reality is this is a committee stacked high with industry reps whose firms' practices were under criticism, as well as Institute of Financial Adviser (IFA) members, a trade organisation whose members have been at the heart of construction of portfolios laden with high-commission, high-risk securities of finance companies and others.
In my 2009 book After the Panic I highlighted just how bad the industry organisations were and I named some of these practitioners and reproduced their portfolios to demonstrate the damage they were inflicting on the public.
That IFA members, Certified Financial Planners (CFPs) and NZX members are over-represented in these examples of shonky portfolios should have been warnings in themselves.
The Securities Commission didn't have to look far - the whole issue of commissions and brokerage compromising the quality of portfolios from this industry is there to be seen in the advice from the firms of these committee members.
And the latest gaff by this committee came last week with its poor quality decision to allow CFPs and NZX members through the gate - reversing their initial recommendation and in direct response to lobbying by the IFA.
There is absolutely no way the public should have any confidence in how the Financial Advisors Act is going to improve matters for the investing public. Industry capture of the process is too strong.
Commerce Minister Simon Power has even said he expects the industry to self-police, to weed out the poor performers.
That's the view of someone who clearly isn't up to speed on what this sector is capable of, or is in such a rush to legislate he no longer can be bothered to ensure a competent job is done on its clean up.
Either way the public needs to stay wary - the financial advisory sector will remain a dangerous place to send your money.
It is demonstrably obvious that the polytechnic qualifications CFPs all have provide the public with no protection whatsoever. The one and only test the regulator can impose to clean out this financial advisory sector that is so plagued by incompetence, self-interest and abuse of the public is to conduct sample audits of their portfolios.
We know CFPs and organising brokers (NZX members) have been the worst abusers, so for the Code Committee to provide them a free pass is, frankly, offensive.
With regard to qualifications, my view would be to either grandfather all practitioners in, or none of us at all and have us all sit basic unbiased university exams on investment theory. Competence is clearly not proved by what the committee asserts.
But the qualification thing is of distant secondary importance anyway.
What is far more pertinent to the public is that practitioners construct portfolios that are in the client's best interest, all charges are disclosed, and no conflicts of interest exist. This is the practice of advice and the only thing the Financial Advisors Act should be concerned with.
The competence of practitioners can be revealed instantly from a sample portfolio audit. The industry needs to be paying the regulator to do these.
Does this mean everything the Code Committee has come up with is a waste of time? Thankfully not because between its first public utterances and its latest boo-boo it has been exposed to some decent work done by others, particularly the Capital Markets Development Taskforce, of which I was a member, and that has been incorporated in its next draft.
But this issue about favouring its own should be a deal breaker. The committee is not credible. The minister needs to put aside his panic for completion, dismiss the committee and ensure the job is done properly.
New Code Commissioner David Mayhew has an opportunity to step into the breach and rescue the credibility of the whole thing.
* Dr Gareth Morgan is an investment adviser.