| Welcome to the May issue of the Select Wealth Management Dashboard Newsletter. In today’s newsletter, I’m going to take a brief look at the Royal Commission in Australia into the Banking, Superannuation and Financial Services Industry. Over the past month, you may have heard some news in the media about this Royal Commission. The report was scathing, and in particular in many cases found that institutions did not act in their client’s best interests, but in their share-holder’s best interest.
The bulk of the criticism was levelled at larger institutions (banks and insurance companies / fund managers) which employ their own Financial Advisers. These models are known as “vertically integrated” sales models. The commission highlighted that there is an inherent conflict of interest if an employee is giving “advice”, when it is clear that the outcome is going to be a sale of the parent institutions product. This is particularly evident when the employee has extremely aggressive sales targets to meet. The “advice” inevitably results in a recommendation to purchase insurance or investment products of the parent company – whether the product is superior or not, and sometimes even whether the client needs them or not. A common example in New Zealand is when banks entice clients to switch their KiwiSaver accounts to the bank KiwiSaver product – often with little or no analysis done. Similarly, when a bank or “vertically integrated” institution constructs an investment portfolio, and a very high percentage of the portfolio (typically between 65% and 90%) is made up of investment funds of the parent institution or subsidiary companies. To be clear, there is nothing inherently wrong with the sale of a product or portfolio of any single financial institution, or even with a “vertically integrated” sales model. Businesses with “vertically integrated” sales models will argue that they can drive costs down because they are more profitable, and perhaps there is some truth to this. The royal commission found the issue to be in the way that the product or service was sold – under the guise of “advice”. In New Zealand this is relevant in that many advice firms are owned or part owned by bigger institutions. Banks are an obvious example, but firms like AMP, Booster and many others also have ownership interests in many financial advice businesses in New Zealand. The following article on how vertically integrated models with sale targets and incentives can skew advice is very interesting. My favorite quote from this article is “Not everything that can be counted counts, and not everything that counts can be counted” – referring to the fact that meeting sales targets does not necessarily constitute a good outcome for a client. So what can you do to ensure that you are not subject to a conflict of interest when you receive advice? Here are a few simple check points:
At Isaacs Financial Planning, we have opted to remain independently owned at this stage - our business is owned entirely by our Advisers. We believe that this ensures that our interests are aligned - we work for our clients, not any other institution or share-holder. Nor do we have any sales target pressures or outside influence – hence our ability to have a mission statement of “investing your money like it’s our money”. This can be painful sometimes as we don’t have the financial resources of the big institutions, and the compliance costs can be disproportionately high. But we believe at its core, this model delivers the best outcome for clients, so we are committed to it and hope to see more firms like ours pop up and prosper in the future. In terms of the markets, the past 30 days have been surprisingly strong. There were no major moves on any given day, and no major headlines to cross the terminals, but looking back the past 30 days have seen all markets move up materially. The New Zealand market is up nearly 3%, Germany, Japan and Australia are all up 4% or more, and London markets are up over 6%. At the same time, the NZ$ has weakened significantly against trading partners – down nearly 6% against the US$. This is the perfect outcome for New Zealand investors, so a good month of growth for most portfolios. Here are the numbers: |
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In terms of your Select Wealth Management portfolio, I have had many enquiries about the tax reports for the year ending 31 March. These will be ready by the end of this week, and you will be able to access them on your portal login (if you use this). Otherwise, feel free to contact me if you would prefer, and I can forward your report to you as soon as they are available. I am also meeting with researchers JMIS later this month for the quarterly review, and will report back with their thoughts next month. Finally, an update on our Giving Back Program. You may recall that we are raising funds for Warwick Hollebone to put towards the cost of his Stem Cell treatment in Russia to treat his Multiple Sclerosis. Warwick leaves in a couple of days to have his treatment, so wishing you the best of luck mate!!! I am pleased to confirm that we have managed to raise nearly $2,000 so far, and we have 6 weeks left in this campaign. We are desperate to donate as much as possible to Warwick and his family, so we are putting in a massive drive for the last 6 weeks of his campaign. All referrals of family, friends and colleagues greatly appreciated! You can follow progress at www.mifinancialplanning.co.nz/giving-back.html . Until next time, keep warm and well. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.