Bring on another financial inquisition

Is the disclosure of advisers' commissions adequate? Should advisers' commissions be banned?

These are just two of the difficult questions that the Parliamentary commerce select committee will consider in its recently-announced inquiry  into the finance company sector.

The committee could save a bit of time and further enhance our closer economic relationship with Australia by copying the opinion voiced by that country's financial regulator, which proposed the banning of all commissions, including fees linked to the size of assets, in its recent submission to one of the regular Australian government inquiries into the financial sector.

The Australian Securities and Investments Commission (ASIC) submission is a strong statement of intent and if it is eventually implemented, there will be pressure to duplicate the policy in New Zealand.

But that may be some time away. The commerce committee inquiry should be able to get to the bottom of some other questions much quicker. For example, the proposed terms of reference for the inquiry ask: "Whether the marketing and advertising of investment proposals play a disproportionate role in investors' decisions."

The answer is yes. Marketing and advertising play a disproportionate role in all consumer decisions.

Here's another hard one: "What steps can be taken to improve the existing level of investor understanding of financial products and services?"

Government think-tanks, financial institutions, university researchers and other thought leaders have been puzzling over this one for some time and haven't really cracked it yet. Although, the collapse of about 30 finance companies in New Zealand in the midst of the greatest global financial crisis in many decades has certainly perked up local investors' interest in the subject. Where did those billions go?

Lianne Dalziel, who chairs the commerce committee, says the inquiry will delve into areas not included in the swag of financial reforms currently being implemented - reforms that were brought in under her reign as Commerce Minister. But it looks to me as though there is some degree of overlap with her earlier reforms. For instance, the bit about adviser disclosure as well as a proposal to "examine the measures in place that provide redress to investors" - both of these were taken care of in legislation hurriedly introduced last year, by her.

In pushing for this inquiry, Dalziel is effectively admitting she got it wrong the first time around and now wants to tidy up a few loose ends.

Everybody makes mistakes.


David Chaplin

 

 

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