New law creates barriers to would-be financial advisers - and that's good news for some.
Before a new law to regulate the financial advice industry, there were 1600 registered financial advisers and an estimated 6000 people offering financial advice. Today there are 740 authorised financial advisers.
"There's going to be a huge shortage of qualified advisers," says Peter Christensen, chairman of Camelot Group, an advisory service with a presence in 11 centres and employing 27 advisers, 22 of them authorised. "While the industry has had to pay a high price to get where it is today - education, lost production, ongoing compliance costs - the industry will be better off."
The Financial Advisers Act, including supplementary amendments to other laws, provides Camelot with a competitive advantage, he argues.
"This has created a barrier to entry, which will continue to limit the availability of financial advice."
Back in the day, "you only needed a phone, a car and a phone book and you could set up business". There was no compulsion even to register. Today, Christensen says, the industry is strictly vetted by the Financial Markets Authority and advisers are better educated and face both criminal and civil liability should they fall short of expectations.
He points to the "Carey Church case", where an investor took his adviser to court over finance-company investments and won. Christensen says there were cowboy advisers who behaved abominably, particularly "where people were taking commissions and were doing special deals with the providers. Those practices needed to be stamped out."
He is keen to point out that Camelot doesn't take commissions: "We charge a fee and a fee to look after the portfolio." Christensen believes commissions introduce a bias to decision-making, which is not in clients' best interests. "The ones that relied [only] on commissions don't exist today for obvious reasons."
But he says one aspect of the finance company collapse that has not been highlighted is the bloody-minded, do-it-yourself mentality of the Kiwi investor.
"Around 75 per cent or 80 per cent of investors in finance companies invested directly without taking financial advice," he says. "The industry has unfairly had the finger pointed at it when it's the notorious Kiwi preference to do it themselves that contributed to the fiasco that ensued."
Camelot was formed in the late 1980s out of a group of small advisory services scattered around the country. It underwent substantial reorganisation 10 years ago as "the days of the one- and two-man businesses were probably not going to be viable", Christensen says.
It is unusual in that it is a partnership, not a company structure, and half of its advisers have equity stakes in the business.
"We very much encourage them to take up an equity ownership in the business or become a partner in the business," he says. "They achieve that by contributing capital or achieve [targets] and are rewarded with equity positions through performance.
"It aligns their interests with the clients' interests and with the business interests and that's very difficult to do under a company structure." Christensen says he is keen to expand ownership to other employees, including those in administrative roles.
That sense of camaraderie and ownership is what prompted the choice of the name, Camelot: "Camelot reflects the benefits conferred in the unification of England under King Arthur and the decision-making process of getting round the round table," he says.
"Our partners are making decisions in a round-table process and that's a link back to the past, the solidarity and people working together."
Three years ago the company was essentially a network of small businesses operating in cities and provincial centres. The new regulatory environment means it has had to "corporatise" all its administrative and computer functions.
It introduced standards for its advisers beyond what was legally required, says Christensen. This included the electronic documentation of advice given to clients, a review process and follow-up procedure and client sign-off on that advice.
The group administers more than $400 million of client funds, representing 25 per cent growth in the past three years. Revenue, made up solely of fees for portfolio and risk management, has increased 20 per cent over the same period.
"We're very positive because we can see that the changes in the landscape brought about by legislation mean the people who provide advice have to be better qualified, which can only be a good thing."
Christensen predicts that further consolidation in the industry will occur "and we will be a primary beneficiary of that consolidation as people look to exit the sector or seek to take advantage of the support a model such as ours can provide".
"In three years' time our business will be twice the size it is today."
Levels of Advice
As of last month, financial advisers fall into three categories:
Registered financial advisers advise on simpler products such as term deposits or mortgages.
Qualifying financial entity advisers can also advise on some more complex investments, but only those offered by their own company.
Authorised financial advisers can advise on more complex investments and offer investment management and planning.