Gen Y will ignore the FMA and shop online

The Financial Markets Authority (the regulator) has a mandate to improve the quality and transparency of financial advice provided to all New Zealanders. At least that’s my take on it.

Everyone who’s interested will have their own slant on why and how. From politician to insurance agent, from bank to independent financial adviser, from insurance company to adviser association and from journalist to legal experts inside and outside the FMA.

What the FMA will need to do is - make it up as they go along.

A) Because there is no template.

B) Their personnel will transition. Many of the expert’s now giving advice to ‘the industry’ in external consultative roles have served a brief time in growing the bureaucracy and developing policy from within FMA.

Prior to their appointment it was necessary for the ‘Gamekeepers’ to communicate and engage with ‘The Poachers’ – not simply on a submission and consultative basis as is practised now but a more hands on development phase. It was necessary at the time because the FMA staffing was small and their experience negligible.

There is ongoing consultation with various industry bodies and I’m convinced the genuine objective of the FMA is to stay true to task. But like all bureaucracies and causes the balance of common sense and autocratic determination will go through many years of teething. One only has to consider the mental health industry, the gay rights movement, gender equality and indigenous recompense to understand that personal agendas, bias and stigma will prevail for some time. Nothing like money or the perception that the ‘haves’ are taking advantage of the ‘have not’s’ for foment to occur and prosper.

Being libertarian I’m opposed to large bureaucracies and even larger central government. History and experience tells me they are less efficient than self regulation and overview of governance provided through law and judiciary – with sensible philosophy underpinning ‘the consumer’ outcome. Governments do not run business well. Communism at an ideological level has proven that and any number of examples exist in our country where either government agencies or government businesses are hopelessly inefficient.

I’m not opposed to consumers being better informed and better serviced by financial service providers after all I’ve been attempting to champion that cause for well over half my life. The financial advisor however builds a business by offering help to people who have not asked for it. In the early stages of an adviser’s career this can be psychologically devastating because the majority of people who have been approached with a genuinely priceless offer of advice and assistance – will say no. For most people who enter the financial services industry, it’s an experience that ultimately defeats them.

The reason I highlight this most fundamental of differences between ‘the professions’ and the financial services industry is because there is light years between – having to find and convince ones prospects they should take advice about – their mortgage structure, their personal insurances, their investment asset allocation, their financial control and their need to either:

A) Communicate with IRD (through an accountant).

B) Achieving building consent (through an engineer).

C) Responding or initiating or preventing litigation (through a lawyer).

There isn’t a light year in difference with the need for proficiency but there is no legal requirement to:

A) Repay ones mortgage early.

B) Own life assurance products or to insure ones assets.

C) Put your Kiwi Saver accumulation into growth assets as opposed to leaving them in default funds.

D) Living life on purpose.

Hence the need for adviser’s to be referable and their value to be maintained – with skills, knowledge and persistence, for the passionate to prevail.

When Sam Stubbs (Ex Tower) recently pronounced his wish to see a self regulated industry with a government overview – I thought at last; a ‘supplier’ admitting – perhaps that’s where the buck should have stopped. I think the horse has bolted and too many interested parties at all levels will enjoy the personal crusade or misplaced attention. Unfortunately the Australian and UK examples of recent regulatory compliance with burgeoning bureaucracies and expanding adviser/client paper wars have neither advanced adviser trust nor engaged more advice in either personal insurances or personal investment. There are many less financial advisers and many ‘professional’ accountants and lawyers enjoying the financial spin off from the financial services industry and its regulatory developments. The same will occur in New Zealand – there will be less independent advisers, banks will continue to prosper and specialist operators – will advise the affluent and some middle class prospects prepared to pay for advice. The free service is over, commissions will be gone within 10 years and everyone wanting advice will pay a fee. The long established adviser’s can then call themselves ‘professionals’ and be proud of doing so – as many are doing now – but who will build the growth path. Just as the All Blacks need the ITM Cup, so to the financial services industry. Suppliers stopped recruiting new people over 20 years ago – bank officers can’t and don’t transition (apart from mortgages), the IFA, PAA or dealerships don’t have the right business model to recruit and train (because it’s based on commissions – upfront) and the FMA does not have a mandate for increasing advisor numbers – it wouldn’t know the time and cost to bring through interns, trainee financial advisers or insurance specialists and it will probably never become a KPI. But it should.

If authority were genuinely focused to client care and transparency of professional advice ongoing they simply need to count the grey heads in the industry forums (with adviser’s average age in the mid 50’s) – Gen Y will truly need to go online. That of course supersedes all advice – and the bureaucratic sensitivities and formalities which are taking inordinate time and expense at the moment. Regulation does not make ‘a professional’ – behaviours do, but not from compulsion.