What should the strategic objective be?

Most people would agree that as a country we could improve our financial literacy – individually and collectively. Few would debate that a national average expenditure of 110% of income is not ‘running a healthy budget’, or that leaving KiwiSaver investments in ‘default funds’ is particularly smart, or expecting  family or the Sate to underwrite loss of income as being overly intelligent, or letting the courts determine child guardianship or the court allocating asset distribution as being the perfect and most cost effective means of redistributing assets, or the court managing family responsibilities for our children’s upbringing in our absence due to our premature demise.

We know from international research that: 87% of employees want financial education, 45% feel their level of financial stress today is high to overwhelming, 61% cited money as their number one stressor and 52% indicated distress over financial matters as having contributed to irritability, anger, fatigue, and sleeplessness. We also know from the same research that people with high debt stress are much more likely to suffer corresponding health issues:  severe anxiety, migraines, severe depression, back pain, and muscle tensions, ulcers and digestive tract problems. We also know from many years of experience in the profession, and giving ongoing advice to over 10,000 Wellington clients, the international research statistics are comparable to our own findings. The numbers are compelling but more importantly the cost incurred by families and country is enormous – financially, emotionally, and physically.

There is a dichotomy of opinion however, and it’s particularly contentious at a time when greater regulation of the financial advice service is the vogue with the FMA (The Financial Markets Authority). That divergence of opinion being: public perception of financial services and value versus the opinion provided by clients of professional financial advisers and their actual feedback around: levels of professionalism, technical competence, needs awareness, delivering on expectations, communication. In my opinion here lies the problem. The attempt to ‘prescriptively’ solve a chronic illness through regulation – the illness being financial apathy and aversion to  education and advice. Until an individual, family, or business is prepared to ‘take advice’ they will continue to be disdainful of professional advisers. Hence, the record profits of product suppliers. People are buying products – few are paying for advice.

We know from fundamental economics that tariffs and monopoly privileges provide firms with hefty profits. In a competitive system, firms will compete in lobbying to receive those privileges, it they are available. Those who can remember New Zealand pre 1984 and its system of import permits and financial regulation would know that those permits and arrangements are in a far better position to manipulate the regulator than are a disparate group of ‘advisers’. But these organisations (large corporate financial institutions) do not deserve the high ground. Much of the above mentioned ‘financial issues’ come from products and transactional services – delivered to the ill informed and naïve. People often not aware of the future consequences of their actions or inactions.

How do we improve the outcome? How do we make people more aware? Well, some think you do it via regulation and government providing the answer. Let’s look at how that’s going with; health, mental health, welfare, building, real estate – and soon to be housing.

• Is the health and hospital system solving obesity, diabetes, or chemical dependency? 

(No, but nor is it their responsibility – as individual and families we are responsible).

• Is our mental health system reducing suicide, depression, or workplace stress?

(No, but nor is it the responsibility of our many excellent service providers).

• Is our welfare system reducing family violence, child beatings, and/or financial dependence on the tax payers?

(No, but nor is it the responsibility of WINZ).

• Has the regulation of the building industry improved the quality of our residential housing and apartments?

(No, it has dramatically increased costs and reduced quality).

• What about the Real Estate – do you perceive or experience a better service or greater peace of mind when buying or selling?

(Or are you paying more – fees, additional services and taking professional advice from mortgage brokers, lawyers, financial advisers – to mitigate risk?)

The bigger problem we have (financially speaking) in NZ is a poor understanding of fundamental money management and confidence of where and how to invest. The answer is education (at an early age) and professional advice. When people are provided with the basics from a younger age they are in a much better position to determine how they wish to act ongoing. The food they eat, the exercise they take or the financial products they purchase – it is not going to change one iota via ‘regulation’ – except to benefit the organisations who are capable of promoting greater influence at ministerial and regulatory level – and be assured that is not (unfortunately) the independent advisers. Advice will go to those people willing ‘to pay for it’ and the product suppliers will transact with all the others – that is happening now – it will increase.

Mutual trust and respect are critical traits of the relationship built between a professional financial adviser and their client. That relationship can only be maintained through an ongoing service, offering value and technical competence. Outcomes are extremely measurable. Unfortunately, as costs of regulation escalate, ultimately the client will pay more – either for ‘more expensive’ advice or through not taking advice.

Just as an aside you may be interested in the rising cost of the governments and liberal legislators focus to ‘compassion’.

In NZ, central government spending on social welfare and assistance, including health and education was 74% of central government current spending (year end march 2013). This represented 23% of GDP. In real per capita terms it was up by the order of 160% between 1978 and 2014. Compassion without efficiency puts compassion in question – my sentiments entirely.