Financial advisers show and tell under new disclosure regime

01:43, Jan 31 2009

Financial advisers are taking different approaches to the new disclosure regime, with some revealing all their fees, charges and commissions in their first meeting with clients, and others holding back on details until after a financial plan has been prepared.

The new requirements under the Securities Markets Act, which were introduced on February 29, force investment advisers to make a full disclosure to clients without having to be asked.

They must hand over a written statement which sets out their experience, any past wrongdoings, whether they have professional insurance, a full list of the securities (funds, shares, bonds, debentures, etc), as well as a breakdown of fees and commission, and other incentives that they receive for selling them.

The aim of the new rules, brought in following the collapses of a number of finance companies, is to help the public judge the quality of the advice they are being given and how much they will be charged.

But while some advisers (such as Colin Austin from Decisionmakers on Auckland's North Shore, Sheryl Sutherland from Women's Financial Strategies in Chirstchurch and Alison Renfrew from Lyford Asset Management in Wellington) reveal all in their initial disclosure, including the fees and commissions they are paid by insurance companies, others take a staged, and in some cases, less-complete approach to disclosure.

Advisers at New Zealand Financial Planning, for example, provide an initial disclosure statement which does not include fee scales. Those are reserved, unless asked for, until after a plan is prepared, although unlike most advisory firms' long list of potential fees and charges, NZFP's fees are an easy-to-understand portfolio set-up fee and a yearly monitoring fee.


Advisers at Spicers, which charges a greater number of fees, also offer a full breakdown of fees only once a plan has been prepared.

So-called GPs (general practitioners), who do both investment and insurance business have a choice to make: whether to reveal their fees and commissions on both.

One firm that has chosen to disclose only investment fees and commissions, but not those for their insurance work, is Apex Advice group in Auckland. Gavin Grieves from the group, which is closely aligned to insurer and fund manager Sovereign, said: "It is not required so we have chosen not to do it," but added: "Personally, I think insurance will be pulled into this. We are all for disclosure here."

Some AMP advisers are following a similar route. AMP investment adviser from Future Financial Solutions Mark Williams does not do insurance, but said his insurance colleagues had not adopted the new securities disclosure rules as a model for their disclosure, although they were considering it.

The Sunday Star-Times examined dozens of disclosure statements from advisory firms, and found they provide new insights into the way advisers are paid, but those reading them need to understand the context, which can be tricky.

For while some can be considered independent, others are much closer to being sales arms of big fund managers, insurers or related parties.

It's best not to assume the way an adviser is paid is normal.

For example, Williams' advisory business based near Queenstown is "aligned" to AMP, and while there are no sales quotas to meet for the sale of AMP funds, he has more incentive to sell AMP funds than those of rivals.

Through the "AMP Rewards programme" Williams stands to gain: flights and accommodation on overseas trips (courtesy of AMP, he's off to South Africa in three weeks' time for an AMP conference where speakers include former president and Nobel Peace Prize winner FW de Klerk and Rugby World Cup winner Francois Pienaar), business grants, IT support, cash prizes of up to $5000 for high sales in any of AMP's product categories, payments of up to $25,000 based again on high product sales, and the ability to enter "sales competitions" to compete for prizes.

"Soft dollar" commissions, as entertainment and overseas trips are known, are likely to cause some controversy yet.

Most advisers are disclosing them using bland paragraphs which do not reveal the largesse of the incentives on offer, which means it is hard to judge whether they would have a big effect on the advice they give.

A different adviser model is that of Money Managers, where advisers are franchisees of Money Managers and are paid "marketing costs" for recommending products from related parties, although the firm now makes recommendations from a list that includes non-related parties such as ING, Asteron and Liontamer.


Sunday Star Times