The Consumer Magazine Strikes Again

Mystery shopping always provides some insights as to what happens within businesses.  Recently the Consumer Magazine, mystery shopped 33 investment advisers/groups.  Most failed.  The groups who were “mystery shopped’ included the major trading banks, nationwide groups such as Spicers, NZ Financial Planning, Money Managers, ABN Amro Craigs, Rutherford Rede, and other smaller practices.  These groups all produced plans that were either rejected or disappointing.  No score indication was provided for the banks, as they did not produce any plans.

The findings are a damming indictment, to what must amount to a significantly large portion of the investment industry on funds under management/advice basis.  But we know there are some good knowledgeable advisers working within most of these groups.  Can Consumer have just struck dud advisers at each of these groups, or is there perhaps something else going on that Consumer or the groups are not letting on?

A number of the groups produced investment plans that were disappointing or rejected.  It is common practice for the larger groups to have investment plans prepared by a paraplanner, not the financial planner.  They generally use template plans, which are then semi personalised.  It must be very difficult to produce a fully personalised investment plan when you are relying on interview notes provided by someone else and have never met the potential investor.  If the issue of poor plans is largely a paraplanner problem, then the major groups will need to get back to basics and develop superior templates, and develop means of personalising them.

If, on the other hand, the issue is an adviser one, then the industry has real problems.  There has been a comprehensive education path in process for over 15 years for advisers to attain the international Certified Financial Planner status.  This has been voluntary, as there currently is little regulation on who can provide financial advice.  With regulation looming, standards are being prepared.  We note that a plan provided by one of the appointees on the working committee was in fact rejected.

One area of concern on the full report was a lack of information provided on investment costs.  Consumer was critical of investment statements reporting maximum fee levels.  This shows a lack of understanding on the part of Consumer.  Actual fund fees for the year cannot be provided until after the event.  Fees are typically presented on a percentage basis.  There may be fixed dollar amounts; however fund values vary on a daily basis, so if a fund value increases the fee as a percentage will decrease.

They were also critical of the length of disclosure statements.  They should not blame the advisers for this.  The regulators were the ones who have detailed what information must be provided.  Only fully fee based advisers would be able to meet full disclosure statement requirements within a two page disclosure statement.  Those advisers who have a retail transactional service need to disclose what fees they may receive from every provider by investment product. 

We do not believe that potential investors should be disturbed into doing nothing by this report.  There are good advisers working in the industry.  The key is to find one that you can develop a good working relationship with.  This should then work well over the long term.  If you want continuity in such a working relationship you are more likely to find a suitable adviser in a privately owned boutique investment advisory practise than in a group where there is often reasonably high staff turnover.