Advice-givers are regulation price-takers

Commerce Minister Simon Power. Photo / Mark Mitchell.

At last the real price of adviser regulation is beginning to emerge. Simon Power, Minister of Commerce, came right out last week with the most important information yet to emerge from the interminable adviser legislation process - at least for advisers. That is, how much they'll have to pay to play.

On the surface, the $1,385 one-off and $410 ongoing annual fee payable by those who want to operate in the top-tier of financial advice - called authorised financial advisers (AFAs) in the regulatory jargon - might not sound like much. However, if you include all the other extra expenses AFAs will have to stump up with - eg membership dues for an independent complaints body, education fees to meet new standards, preparation of compliance documents etc - and the annual costs begin to look more serious.

Serious enough to drive some (or many, according to some) independent operators either out of business or into the safer haven provided by financial institutions under the Qualifying Financial Entity (QFE).

As one commentator on the Good Returns site said: "Of course we can all just join a QFE, take in significantly less individual responsibility and pay nothing, while offering our clients with far less consumer choice - was that the whole reason behind regulating the industry?"

But it's not the cost of compliance alone that is bugging some independent advisers such as Mike Newton, of Auckland firm, Newton Ross.

Newton, along with a loose coalition of similarly-minded independent advisers, says the way the regulations are being presented appears to undermine the value of independence itself by implying that smaller advisory firms are incompetent.

But big is not necessarily best, Newton says. In fact, smaller, professionally-run advisory firms are probably the only ones capable of offering an authentic independent service, he says.

"Are there any large advisory firms that are truly independent? We can't think of any!," he says in a statement sent to me.

Duncan Balmer, of Balmer, Jeffs & Co - who along with Rob Jeffs, Wayne Ross, Susanna Stuart and Deborah Carlyon co-signed the statement with Newton - also pleads the case for independence.

"For me, the virtues of firms like ours, and why investors should want them to survive, are many," Balmer says. "We are truly independent, being paid only by our clients. We do not have cosy relationships with product providers influencing us, and without a bureaucracy to run we are able to focus on our clients rather than on organisational politics. Our services are personalised and we do not churn out standard solutions by rote. We are also cost effective."

On the upside, for firms like these, if regulation drives their rivals out of business there will be more work for them.

 

David Chaplin

 

Pictured: Commerce Minister Simon Power. Photo / Mark Mitchell