2 Defining Issues of Today


The first issue arose from a recent industry meeting when a long-time friend and colleague defined himself as a "Libertarian Man" and labelled me as a "Rabid Socialist". 

Such categorisation originating from old ideologies sounds well past its sell-by date.

And, of course, I reject, deny, and utterly refute such a suggestion. 

From the regular 6 monthly medical checks and blood tests, I can confirm that I don't have rabies!

And even the Socialist label might raise some eyebrows given my stance on the second issue, that of Adviser remuneration. 

But the labels based on ideas tend to stick and many Libertarians ascribe the title of Socialist to anyone who disagrees with their view of an unbridled free market. 

My friend and colleague - let's call him LM - is a leading exponent in the industry of insurance - you know, where a community of willing participants pool their resources to assist the unfortunate members of that community - one of the basic tenets of Socialism.

LM also declares that he is an Atheist, calls for Advisers to unite, and promulgates a lesser role for the State. 

Anyone who has read "Das Kapital" will be familiar with Marx's views on these issues. 

Religion is an opiate, unity is most certainly strength, and the withering away of the State is well covered in Marxist writing.

I suspect LM would not be welcome in the ranks of the Republican Tea Party.

And there weren't too many free market Libertarians around Wall Street when AIG was on the point of going under in the 2008 Global Financial Crisis.

With regard to the second issue, among the 71 submissions sent to the Select Committee on FSLAB, the Consumer lobby advocated for the complete banning of commission, or for strict regulation to be applied. This would defeat one of the prime objectives of the review, i.e. to make financial advice more accessible for consumers. Regulation of commission has not had the desired effect elsewhere and NZ has been historically astute at learning from the mistakes of others.

The suggestion of a regulatory impost over the earnings of financial advisers should be resisted. This doubly so when the initiative is driven by wholly spurious and unreliable research from an Australian environment driven by politics and self-interested parties. 
The claim that commissions represent a conflict of interest is on the surface valid, but charging fees is no guarantee of good advice either. 

Most, if not all, remuneration structures can be ascribed an element of conflict and the answer surely is to manage the conflict to ensure client interests are prioritized as proposed in FSLAB.

In this instance, there is a product which consumers urgently need - good financial advice - and how that is paid for should be a matter for the buyer and seller to settle.

Are commissions too high in NZ? 

I honestly do not know and have no answer other than to point to the incidence of underinsurance or no insurance and suggest that removing sustainability from a sector of the Advice community will merely exacerbate the problem.

The costs of training, administration, accommodation etc., have been transferred from product providers to the intermediary over the last 20 years, and increased costs combined with decreased earnings will certainly change the dynamics of distribution.

If earnings potential is lowered and compliance costs are increased, there will undoubtedly be Adviser firms on the edge that will not survive. For others, this may be the last straw and they will take the opportunity of retiring, selling, and/or leaving the advice industry.

Finally, advocating that the market should be allowed to set the level of Adviser remuneration hardly sounds like something Che Guevara would have supported, much less the view of a "Rabid Socialist". And to all those Libertarians who argued strenuously for the US Government to bail out AIG with taxpayers' money in September 2008, a de facto nationalization of one of the largest financial institutions in existence, welcome to the Peoples Republic of America!

Perhaps it's time to re-visit definitions and labels, take a more pragmatic view of those who do not fit neatly into our pre-conceived notions, and consider more contemporary factors in assessing contemporary issues.

David Whyte