The financial world is, as this column has highlighted once or twice before, full of ironies and anomalies.
An example of the former is that in the regulatory space some advisers are now apparently and according to the FMA Chief Executive able to put their clients' interests first whilst at the same time only recommending their own high cost products.
But we aren't short of anomalies either, for example, fund managers can be paid huge performance fees yet can substantially underperform the benchmark index.
It's pure irony when bankers call for the Auckland Council to sell assets (preferably at low prices to their clients) to reduce debt when their own gearing is 2-3 times that of the Auckland Council.
The chief executive of an Australian bank surely set some sort of irony record the other day when he earnestly called for financial advisors not to receive bonuses for product sales but ignored the fact that that year he had received about $20m in bonuses himself.
Even the Inland Revenue Department has tried its hand at irony. Recall their motto, apparently ditched, that "it's our job to be fair".
The irony here was that if you paid too much tax, which strikes me as being a little unfair, you would be waiting a long time for the tax department to give you a call. But perhaps the biggest irony in the local tax world is the inappropriately named "fair dividend tax" also known as FDR.
We have covered the giant step backwards for NZ investors that is FDR previously but let's rehearse the basics again: simplifying things somewhat the way the FDR works is that the "it's our job to be fair" tax department assesses international shares for income tax on the assumption that the cash income is 5 per cent, after management fees.
Whilst on the face of it this might not sound particularly odious one needs to remember that the cash income yield of the world stockmarket is only about 2.5 per cent.
So if you knock off from that number 1-2 per cent in fees and another 1.65 per cent in tax the after tax cash flow from international shares is likely to be zero at best and quite possibly negative and that's before fees payable to the financial advisor.
Mum and Dad, retired and focusing on income compare this zero figure with the 2-4 per cent, some of it sheltered from depreciation charges, from owning an Auckland residential rental and it is not hard to see why residential looks attractive. The love affair with things residential doesn't look anywhere near illogical from this perspective.
The impact of this policy is exacerbated by the related "anything goes if you disclose" get out of jail clause which policy makers mistakenly maintain protects retail investors from bad advice.
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It is a more than little ironic that a Labour government, which bravely floated the NZ dollar back in 1984 thereby permitting New Zealanders to invest overseas has, by originating the FDR effectively legislated against the practice. Make no mistake the FDR is a quasi-capital gains tax on overseas investments that has fundamentally influenced the asset allocation strategies of many retail investors, for the worse.
Diversification is the only free lunch there is thus the FDR tax is causing a misallocation of resources from a national perspective and higher risk portfolios for individual investors.
We haven't even touched on the waste of money that is involved in properly accounting for FDR tax thus history may well record the author of the tax, Dr Michael Cullen, in almost the same league as that of arch-market meddler, Sir Robert - carless days - price freeze - think big - Muldoon.
As noted FDR was dreamed up by that master of irony, Michael Cullen, former Minister of Finance in a Labour Government. Mr Cullen's sleep was apparently constantly interrupted by nightmare visions of local shareholders in US technology stock, Dell Corporation, enjoying huge capital gains whilst paying little or no tax.
Whilst this may have true in 1999 a lot has happened since then.
The historic 10 year total return of US stocks in NZ$ terms is just 5.9 per cent pa meanwhile Auckland residential property owners are blessed with a very favourable tax position, in relative terms, thanks to largely untaxed capital gains.
Regulation has alienated or forced into retirement much of what was left of the independent financial advisory sector.
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Thus from an after tax income perspective Auckland residential makes huge sense relative to international stocks. So in our last bit of irony for today in NZ we have one arm of the government, the Reserve Bank, trying to push down property prices whilst the other, the tax department, is doing its best to push prices the other way.
But dumb tax law isn't the only impediment standing in the way of retail investors making good decisions. One other major problem is good regulation or rather a lack thereof.
In NZ the government and the Ministry of Business and Innovation have made some important steps to improving the lot of retail investors but just lately seem to have bumbled their way from one bad idea to the next. In the process regulation has alienated or forced into retirement much of what was left of the independent financial advisory sector.
In a couple of weeks' time we will therefore discuss the question of whether or not NZ regulation is up to scratch but to preview, the notion that it isn't, is based on the simple observation that some years after the big bang regulation that was supposed to put things right for retail investors, the biggest players in the financial advice area are still able to give sub-standard investment advice.
The deleterious impact of this policy is exacerbated by the "anything goes if you disclose" get out of jail clause which policy makers mistakenly maintain protects retail investors from bad advice.
It's not difficult to contend that a reasonable person, confronted by these policy errors, would conclude that either the law-makers and/or the MBIE are out of touch with reality or that regulation, as Gareth Morgan once remarked, has been captured.